This paper provides a simple example of an economy in which equilibrium prices and quantities exhibit what may be the central feature of the modern business cycle: a systematic relation between the rate of change in nominal prices and the level of real output. The relationship, essentially a variant of the well-known Phillips curve, is derived within a framework from which all forms of “money i...

Although the “country runs” of the Asian crisis stopped at the Chinese border, their effects nonetheless included a realignment of real exchange rates and a rise in the risk premium demanded of investments in China. To examine alternative Chinese policy responses, this paper introduces a multi-country, multi-commodity comparative static macroeconomic model. Simulations suggest that, although th...

Since the highly influential paper of Meese and Rogoff (1983), who pointed out that the behavior of nominal exchange rates (NERs) can be described by a simple random walk, a lot of ink has been spilled over the sources of NER fluctuations in the context of the exchange rate regime choice. The empirically observed large NER volatility under floating led many to perceive the flexible NER as a sou...

Using an optimizing model we compare alternative monetary policy rules and exchange rate regimes for a small stochastic open economy with imperfect competition and short run price rigidity. The criteria to choose among rules and regimes are obtained using a welfare criterion derived from the utility function of the representative agent. The main findings of this paper are that, depending on wha...

In the paper the causal relationships between money and other macroeconomic variables such as output, interest rate, prices and exchange rate in Croatia were analysed. The basic principle of Grangercausality analysis is to test whether past values of monetary variable help to explain current values of output. Multivariate causality tests were performed in a vector autoregression (VAR) model. Th...

In this paper we study the role of the exchange rate in conducting monetary policy in an economy with near-zero nominal interest rates as experienced in Japan since the mid-1990s. Our analysis is based on an estimated model of Japan, the United States and the euro area with rational expectations and nominal rigidities. First, we provide a quantitative analysis of the impact of the zero bound on...

Friedman (1950) championed a shift from a fixed exchange rate regime (Bretton Woods) to a world of central bank issued floating currencies. Following Menger (1892) and Mises (1971), we see that the exchange-value of money lies in the original use-value of a commonly accepted medium of exchange. However, actors also incorporate their inter-temporal preferences in choosing a money. Not only their...