The function of monetary policy to alter the informational content of money price signals is examined in a model where traders can observe an economy wide financial signal and a local commodity price. Under a passive policy, money demand disturbances, which are not directly observable, are shown to be confused with real productivity shocks and thereby preclude prices from fully reflecting all information. Even when the policy authority has no informational advantage, prospective money growth feedback rules can “improve” the structure of available information.

An equilibrium model of international trade, payments, and financial asset flows is developed with implications for the relationship between asset returns and changes in the relative prices of consumption goods of different countries. The model focuses on international trade as enlarging the opportunity for intertemporal exchange. The main source of uncertainty in the model is revisions of investors' expectations of the profitability of country-specific capital. The model is extended to include money to demonstrate how international monetary agreements may affect individual portfolio decisions.

[The theory of monetary policy is examined as it pertains to the functions of money as intermediating intergenerational trade as well as providing a useful service return. Finite economic lives are shown to alter the characterization of the optimal inflation rate from that suggested by models with infinitely long lived agents. In uncertain environments with sequential trade, policy is examined as altering the range of possible trades between agents of successive generations. In some cases, fully anticipated activist feedback policies may increase expected utility from that attainable with passive policies.]

The role of monetary policy as it affects available information is examined in an equilibrium model of the business cycle. Exogenous, uncertain changes in the expected return to capital assets relative to money holding are shown to induce revisions in investors' desired portfolios. Under a passive policy, asset market equilibrium requires a change in the value of money, which, if imperfectly perceived, detracts from the signaling aspect of observed prices. Active money growth feedback rules are examined as altering the prospective return to money holding. A policy may be designed to maintain the relative attractiveness between real capital and money even if the controlling authority has no informational advantage. Such a policy is shown to obviate the need for portfolio revisions to assure informational efficiency.

The role of monetary policy as it affects available information is examined in an equilibrium model of the business cycle. Exogenous, uncertain changes in the expected return to capital assets relative to money holding are shown to induce revisions in investors' desired portfolios. Under a passive policy, asset market equilibrium requires a change in the value of money, which, if imperfectly perceived, detracts from the signaling aspect of observed prices. Active money growth feedback rules are examined as altering the prospective return to money holding. A policy may be designed to maintain the relative attractiveness between real capital and money even if the controlling authority has no informational advantage. Such a policy is shown to obviate the need for portfolio revisions to assure informational efficiency.

We explore a managerial model of investment behaviour in which an incentive problem arises because one input factor (managerial effort) is not publicly observed. We show that an optimal incentive contract leads to investment levels which are below first-best in low states and that this phenomenon can account for greater cyclical variability in aggregate production and investment. From the perspective of incentive scheme design, a special feature of the model is that screening takes place over two variables (investment and output) rather than one as is customary.

In a general equilibrium model with uncertain second period demand, incomplete markets, and costly labor mobility, the authors analyze the feasibility and optimality of alternative employment contracts. For the case where layoffs are prohibited, they demonstrate that both the fixed wage--constant employment contract, as well as the flexible wage--variable employment contract are equilibria in firm behavior, while the latter is preferable from society's point of view. In the case with layoffs, they show that the competitive mechanism leads to a less than optimal number of layoffs, and demonstrate that unemployment insurance with less than complete experience rating lowers the cost of layoffs to the firm and encourages labor mobility. In the context of the model, a properly designed unemployment insurance program yields a fully efficient allocation.