Portfolio autarky obtains when residents of every country are prohibited from owning real assets located in other countries. Such a regime and a laissez-faire regime, both characterized by free trade in goods, are studied in a model whose resource and technology assumptions are those of the standard two-country, two- (nonreproducible) factor, two- (nonstorable) good model. But to ensure a market for assets (land), the model is peopled by overlapping generations; each two-period lived individual supplies one unit of labor only in the first period of his life. Unique equilibria are described and shown to exist, and, in terms of a “growth model” version of the Pareto criterion, laissez-faire is shown to be optimal and portfolio autarky to be nonoptimal.
This paper argues that versions of Samuelson/Cass-Yaari overlapping-generations consumption-loans models ought to be taken seriously as models of fiat money. The case is made by summarizing and interpreting what these models have to say about fiat money and by arguing that these properties are robust in the sense that they can be expected to hold in any model of fiat money.
Two of the properties establish the connection between, on the one hand, the existence of equilibria of which value is attached to a fixed stock of fiat money and, on the other hand, the optimality of such equilibria and the nonoptimality of nonfiat-money equilibria. Other properties describe aspects of the tenuousness of monetary equilibria in such models: The nonuniqueness of such equilibria in the sense that there always exists a nonfiat-money equilibrium and the dependence of the existence of the monetary equilibrium on the physical characteristics of other potential assets and on other institutional features like the tax-transfer scheme in effect. Rather than being defects of these models, it is argued that this tenuousness is helpful in interpreting various monetary systems and, in any case, is unavoidable; it will turn up in any good model of fiat money. Still other properties summarize what these models imply about the connection—or, better, lack of such—between fiat money and private borrowing and lending (financial intermediation) and what they imply about country-specific monies.
In this paper, we examine various exchange rate regimes, paying particular attention to what difference the monetary-fiscal policy choices of governments make. The exchange rate may be market-determined or fixed, and if fixed, either cooperatively or by one government alone. Further, capital controls may or may not apply. Our most important result, quite general, we believe, is that absent capital controls the equilibrium exchange rate of the floating rate regime is indeterminate. It makes no sense to advocate floating rates and unfettered international borrowing and lending.
In “The Inefficiency of Interest-Bearing National Debt,” (JPE, April 1979) we argued that private sector transaction costs are needed in order to explain interest on government debt. It follows that if the government’s transaction costs do not depend on its portfolio, then, barring special circumstances, an open-market purchase is deflationary and welfare improving. In this paper we show that this result can survive a potentially relevant special circumstance: reserve requirements which limit the size of insured intermediaries.
This paper presents a welfare analysis of monetary policy rules that differ as regards the extent to which monetary policy accommodates an exogenous, stochastic deficit. Examples show that a nonaccommodating rule, one involving a higher ratio of bonds to currency the higher the deficit, is not necessarily better than rules that accommodate: either a rule involving a constant ratio of bonds to currency or one involving a lower ratio of bonds to currency the higher the deficit. Moreover, the nonaccommodating rule can imply more variation in the price level than the accommodating rules.