A choice-theoretic, cash-in-advance model is constructed to examine foreign-exchange controls. While foreign-exchange controls improve the trade balance and the balance-of-payments (or exchange rate) they reduce welfare for a distortion-free, small, open economy. This is because foreign-exchange...

The Ricardian model with a continuum of goods is extended to a cash-in-advance environment with variable labor supply, which allows domestic monetary policy to influence real activity through an inflation tax channel and to be internationally transmitted to real activity abroad. The...