In this paper the BOF4 model of the Bank of Finland, which is estimated in a fixed exchange rate regime, is transformed into a model with a floating exchange rate. In endogenizing the exchange rate two alternative assumptions about the formation of exchange rate expectations are used, i.e....

This article examines the implications for the balance of payments of imposing a cash-in-advance constraint on financal market transactions. I show that with a welfare-maximizing government this constraint introduces a lower bound on the central bank's net foreign reserves; the depletion of the...