[Exchange rate management is possible only if the government pursues consistent monetary and fiscal policies. We construct a model in which the real consequences of exchange rate management depend on the precise time pattern of these policies. We study the constraints on feasible policies and the comparative dynamics of disinflation by means of exchange rate targetting. Our theoretical results are consistent wit exchange rate-managed disinflation attempts in Argentina, Chile, and Israel.]

We study the full equilibrium dynamics of a two-country world economy with a floating exchange rate, traded and nontraded goods, and explicit modeling of the use of money. The resulting exchange rate equation depends on several details of the economic structure, such as the supply structure and propensities to spend on various goods. Although real exchange rate movements have the usual association with the current account, the ordinary exchange rate may appreciate or depreciate when there are deficits on current account even when the quantities of money do not change. Deviations from purchasing-power parity and the Fisher equation are shown to be the rule rather than the exception.

We examine the protective effect of a tariff in a small economy with uncertainty and a stock market in which shares of firms are traded. In a deterministic economy, the allocation of resources is governed by commodity prices; in our economy, it is governed by equity prices and is dependent on commodity prices only to the extent that they influence equity prices. We show that in the absence of international trade in securities a tariff need not protect the import competing sector. In the presence of international trade in securities, a tariff always protects the import competing sector.

This paper uses a two-country general equilibrium model of the world economy in order to analyze the effects of budget deficits and government spending on world rates of interest, consumption, and international indebtedness. It demonstrates the difference between the effects of fiscal expenditures and tax cuts as well as between the effects of current policies and expected future policies. It is shown that the qualitative effects of fiscal policies depend on whether the country introducing the policies runs a surplus or a deficit in its current account. Following the positive analysis of the short-run and the steady-state effects, the paper concludes with a normative analysis of the welfare implications of budget deficits.

The consequences of interfamily bequests and endogenous population size for optimal and competitive population sizes and bequests are explored when individuals' utility is a function of own consumption, the number of children, and the welfare of their children. When a bequest benefits each member of a second-generation family, we show that competition leads to underprovision for future generations. Under a separability assumption, the number of children is also shown to be too large.

The paper examines the effect of terms-of-trade changes on a small country's spending and current account, assuming optimizing behavior in an intertemporal framework with perfect international capital mobility. A temporary (future) terms-of-trade deterioration implies a deterioration (improvement) of the trade balance, whereas a permanent terms-of-trade deterioration has an ambiguous effect, depending on the rate of time preference. Nominal and real variables are considered via exact price indexes. Two periods and an infinite horizon are examined.

The paper examines the effect of terms-of-trade changes on a small country's spending and current account, assuming optimizing behavior in an intertemporal framework with perfect international capital mobility. A temporary (future) terms-of-trade deterioration implies a deterioration (improvement) of the trade balance, whereas a permanent terms-of-trade deterioration has an ambiguous effect, depending on the rate of time preference. Nominal and real variables are considered via exact price indexes. Two periods and an infinite horizon are examined.