We construct a two-period model of an open economy and use the model to analyze the welfare implications of fixed and floating exchange regimes. Consumers have perfect foresight and save by holding domestic and foreign bonds, which are chosen according to relative interest rates, deflated by the...

There is an extensive empirical literature on political business cycles, but its theoretical foundations are grounded in pre-rational expectations macroeconomic theory. Here we show that electoral cycle in taxes, government spending and money growth can be modeled as an equilibrium signaling...