The paper analyzes the impact of a stabilization policy based on a temporary reduction in the rate of devaluation. Against a background in which a constant rate of devaluation has no real effects, it is shown that the temporary policy does and, furthermore, that the real effects tend to become bigger (in absolute value) as the horizon of the temporary policy is shortened. The central discussion is carried out in terms of a one-good, cash-in-advance model, with perfect capital mobility and Ramsey-type consumers. Results are extended to account for home goods and variable velocity; the roles of capital mobility and banking liberalization are briefly discussed.

The paper analyzes the impact of a stabilization policy based on a temporary reduction in the rate of devaluation. Against a background in which a constant rate of devaluation has no real effects, it is shown that the temporary policy does and, furthermore, that the real effects tend to become bigger (in absolute value) as the horizon of the temporary policy is shortened. The central discussion is carried out in terms of a one-good, cash-in-advance model, with perfect capital mobility and Ramsey-type consumers. Results are extended to account for home goods and variable velocity; the roles of capital mobility and banking liberalization are briefly discussed.

We analyze Schumpeterian entrepreneurship within a general equilibrium model of a competitive economy patterned after Lucas. All individuals have access to exogenously growing knowledge. Those who acquire sufficient knowledge become entrepreneurs. If learning is only a function of ability, the faster the progress, the fewer the entrepreneurs, and the higher their pay relative to workers' wages. If knowledge is only a function of lifetime, the faster the progress is, the earlier the entry will be into the entrepreneurial group. When age and ability are considered together, the individuals (if any) who become entrepreneurs with faster progress are younger and more able than those (if any) who drop out of the group.

This paper examines optimal monetary policy under uncertainty in a context in which policymakers are able to make credible policy commitments. The authors study an optimal taxation problem of minimizing the social cost of financing a stochastic and exogenous level of government transfers. Since, in the basic model, the welfare costs of inflation derive only from expected inflation, the optimal monetary policy is highly responsive to the state of nature. In a benchmark case in which all shocks are transitory, the optimal policy calls for loading all the variability of government transfers on the shoulders of the inflation tax. Copyright 1993 by The Review of Economic Studies Limited.

The authors develop and test the orthogonality conditions implied by a dynamic model of the inflation tax. A distinguishing feature of the analysis is that the welfare loss from inflation, the money-demand function, and the time path of inflation are jointly derived from first principles of government and private-sector intertemporal optimization. Quarterly data for Argentina, Brazil, and Israel are used in implementing the model. Although the overidentifying restrictions of the model are not rejected in most cases, there are several data points characterized by higher rates of inflation than the optimal rates under precommitment. Copyright 1992 by American Economic Association.

We develop and test the orthogonality conditions implied by a dynamic model of the inflation tax. A distinguishing feature of the analysis is that the welfare loss from inflation, the money-demand function, and the time path of inflation are jointly derived from first principles of government and private-sector intertemporal optimization. Quarterly data for Argentina, Brazil, and Israel are used in implementing the model. Although the overidentifying restrictions of the model are not rejected in most cases, there are several data points characterized by higher rates of inflation than the optimal rates under precommitment.

Labor allocation and wage-scale formation are studied in the context of competitive hierarchic firms. We show that (1) the wage per effective laborer and his quality increase with the hierarchical position of the employee, and (2) up to a point, the imposition of a minimum wage for production labor increases the quality and quantity of production workers and reduces the wage, quality, and number of supervisors. These results help to explain the skewness of income distribution, and the wage differentials across layers which are inexplicable in terms of differences in labor quality and difficulty of tasks.

Labor allocation and wage-scale formation are studied in the context of competitive hierarchic firms. We show that (1) the wage per effective laborer and his quality increase with the hierarchical position of the employee, and (2) up to a point, the imposition of a minimum wage for production labor increases the quality and quantity of production workers and reduces the wage, quality, and number of supervisors. These results help to explain the skewness of income distribution, and the wage differentials across layers which are inexplicable in terms of differences in labor quality and difficulty of tasks.

We show that limitation of firm size caused by loss of control across hierarchic levels depends crucially on the nature of the supervision process. If the employees cannot identify the times at which their performance is monitored, there is no limit imposed on the firm size by the heights of the hierarchical structure. "Loss of control" may impose such a limit if the employees are aware of the times at which they are being monitored. The analysis also shows the rationale for hierarchical wage differentials for essentially identical employees.

We show that limitation of firm size caused by loss of control across hierarchic levels depends crucially on the nature of the supervision process. If the employees cannot identify the times at which their performance is monitored, there is no limit imposed on the firm size by the heights of the hierarchical structure. "Loss of control" may impose such a limit if the employees are aware of the times at which they are being monitored. The analysis also shows the rationale for hierarchical wage differentials for essentially identical employees.