An optimizing model with overlapping generations and finance constraints is used to develop microfoundations for the monetary adjustment process under fixed exchange rates. The results are broadly consistent with those of the monetary approach to the balance of payments. However, it is shown...

Conventional macroeconomic models disregard both the distinction between liquid and investment assets and the unique f eature of money as that liquid asset that serves as the means of paym ent. This paper incorporates both features into a four-asset dynamic IS-LM model. After imposing the...