Using a model of intertemporally optimizing households, this paper establishes that fiscal policy needs to be endogenous to preempt instability if one wishes to permit any combination of money and debt finance. Conservative governments enforce a greater margin of preemption than liberal...

This paper examines the implications of terms of trade vulnerability for a perfectly competitive, small open economy with incomplete risk markets. Conditions are obtained for which an improvement in the mean terms of trade raises welfare and for which an increase in the variance of the terms of...