The paper examines the effects of terms of trade movements and productivity differentials across sectors on the behavior of the real exchange rate. We develop a simple model of a small open economy producing exportable and nontradable goods and consuming importable and nontradable goods and...

This article presents an endogenous growth model in which credit markets affect time allocation of individuals with different educational abilities. Credit markets allow the more able to specialize in studying and the less able to specialize in working. This specialization can increase growth...

This paper investigates the relationship between inflation and long-run growth. It presents an endogenous growth model that illustrates the channels through which inflation affects growth. The model highlights the effects of inflation on the productivity of capital and the rate of capital...

Persistent inflation and slow stabilization are usually the result of policy accommodation resorted to in an attempt to avoid the recessionary costs of a sharp reduction of inflation. This paper reviews three explanations for why policymakers despite their dislike of inflation may nevertheless...

This paper examines the welfare effects of mitigating the costs of inflation. In a simple model where money reduces transaction costs, a fall in the costs of inflation is equivalent to financial innovation. This can be caused by paying interest on deposits, indexing money, or...

This paper studies the effects that the inability of individuals to borrow against future income has on economic growth. The model assumes that human capital, which is accumulated through education, is the only factor of production. It is shown that liquidity constraints reduce growth. Further,...

This paper studies the effect of inflation on the operation of financial markets, and shows how the ability of financial intermediaries to distinguish among heterogenous firms is reduced as inflation rises. This point is illustrated by presenting a simple model where inflation affects firms`...