——————————————————————————————————— We develop a model where agents can allocate their wealth between a liquid asset, which can be used to purchase consumption goods, and an illiquid asset, which represents a better store of value. Should a consumption opportunity arise, agents may visit a frictional “over-the-counter” secondary asset market where they can exchange illiquid for liquid assets. W...

We study forward-looking economic models assuming that agents take one step ahead expectations looking back k time periods. We show that the dynamics of the economy with such an expectation function are characterized by the coexistence of perfect foresight and nonperfect foresight cycles. The stability of all these periodic solutions under bounded rationality is related to the stability of the ...

Search Frictions on Product and Labor Markets: Money in the Matching Function This paper builds a macroeconomic model of equilibrium unemployment in which firms persistently face difficulties in selling their production and this affects their decisions to create jobs. Due to search-frictions on the product market, equilibrium unemployment is a U-shaped function of the ratio of total demand to t...

We adopt mechanism design to study the long-run consequences of inflation on aggregate output, trade, and welfare. Our theory captures multiple channels for individuals to respond to the inflation tax: search intensity (the intensive margin), market participation (the extensive margin), and substitution between money and a higher return asset. To determine the terms of trade in pairwise meeting...

A decade ago, in July 1990, the Australian economy had just entered a severe recession. Real GDP slowed in the first half of 1990, and then began to fall in the second half of the year. The rate of unemployment in mid 1990 was around 63/4 per cent but rose sharply in the following year. The rate of inflation was around 6 per cent, but was about to decline quickly, to levels not seen since the e...

This paper studies the joint business cycle dynamics of inflation, money growth, nominal and real interest rates and the velocity of money. I extend and estimate a standard cash and credit monetary model by adding idiosyncratic preference shocks to cash consumption as well as a banking sector. The estimated model accounts very well for the business cycle data, a finding that standard monetary m...

The paper empirically examines the relationship between trade openness and the level of corruption in Pakistan using annual time-series data for the period 1984 to 2007. The analysis shows that trade openness negatively affects corruption in Pakistan. The results are robust to controlling for other corruption determining variables and various model specifications. Sensitivity analysis shows tha...

We compare optimal and simple interest-rate rules. Our model features optimizing agents, monopolistic competition in both product and labor markets, and one-period nominal contracts (for wages alone or for both wages and prices) signed before shocks are known. Exact solutions ensure that we obtain correct welfare rankings. Optimal rules maximize the unconditional expected utility of the represe...

Using an estimated DSGE model that features monetary and fiscal policy interactions and allows for equilibrium indeterminacy, we find that a passive monetary and passive fiscal policy regime prevailed in the pre-Volcker period while an active monetary and passive fiscal policy regime prevailed post-Volcker. Since both monetary and fiscal policies were passive pre-Volcker, there was equilibrium ...

The paper outlines and compares two models of how globalization is likely to affect the risk of civil war – a liberal model and structuralist model. Overall, we find considerably more support for the liberal model than for the structuralist, anti-globalist model. Trade does appear to have a capacity for increasing internal peace – not directly, but via trade’s beneficial effects on growth and i...