This paper analyzes, by way of a dynamic model, the role of momentary asset equilibrium and expectations in the determination of the exchange rate in the short run, and the role of the process of asset accumulation in the determination of the time path from momentary to long-run equilibrium.

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The Exchange Rate And The Balance of Payments In The Short Run and in The Long Run: A Monetary Approach

Optimal International Reserves: A Stochastic Framework

Inflation is a process of continuously rising prices, or equivalently, of a continuously falling value of money Its importance stems from the pervasive role played by money in a modern economy A continuously falling value of pins, or of refrigerators, or of potatoes would not be regarded as a major social problem, important though it might be for the people directly engaged in the production and sale of those goods The case of money is different precisely because the role that it plays in co-ordinating economic activity ensures that changes in its value over time impinge upon the well-being of everyone

Inflation: A Survey

Not the least of Harry Johnson's contributions to our discipline was the series of survey papers on aspects of monetary economics which he produced during the 1960s and 1970s. It is no exaggeration to say that the way in which the literature of monetary economics is organised even now follows the design which Johnson first set out in (1962) and built on in the subsequent decade. Nevertheless, the subject has not stood still, and one of the more interesting developments of the last few years has involved the introduction of what has been variously described as the 'disequilibrium money', 'shock absorber' or, as I prefer to call it, the 'buffer stock' notion into monetary economics. The development of this line of thought was getting underway before Johnson's untimely death, much of it indeed under the auspices of his own research programme at the LSE. Even so this did not happen early enough for the relevant ideas to be put in their proper niche by Johnson himself, and the buffer stock approach is not yet fully integrated into the mainstream of monetary economics. Much of the relevant literature is empirical, concerned with modelling particular aspects of the monetary experience of specific countries: hence it is fragmented, and contains few papers which attempt a coherent account of just what this approach is and how it relates to other approaches to monetary analysis. Although essays by Goodhart (1982a, b), and Judd and Scadding (1982a) contain important discussions of these issues, to the best of my knowledge only Jonson (1976a) and Knoester (1979a) have devoted entire papers solely to this central issue, and these are relatively inaccessible and hence less widely known than they deserve to be. In this lecture, I shall attempt to give a brief account of the essentials of this approach. First I shall sketch out its microeconomic background, and then I shall discuss those theoretical characteristics which differentiate it from the 'neo-Austrian' analysis of Robert E. Lucas Jr. and his associates, as well as from the conventional 'Keynesian' approach to monetary economics. Last, but by no means least, I shall argue that it yields simple theoretical insights into important empirical and policy-related issues which are troublesome for alternative approaches. In short, my tribute to Harry

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The "Buffer Stock" Notion in Monetary Economics

The paper presents a model where financial intermediaries invest in a safe and a risky, two-period asset -with aggregate and idiosyncratic shocks on tire risky asset. The realization of returns is privately observed by banks, which offer deposit contracts, with a promised return at t = 1, the level of which depends on the degree of competition in the banking industry. Banks are sensitive .to the propagation of other banks' failures: depositors try to infer the state of the economy.and revise their beliefs after observing too many failures, hence they may watt to rut even on relatively healthy banks (the paper includes a short and a long abstract in French).

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Competition Among Financial Intermediaries and the Risk of Contagious Failures

Monetary and Value Theory: A Critique of Lange and Patinkin

MY starting point is Popper's Demarcation Rule (e.g. [5], p. 41), that a statement is to be regarded as scientific if it is refutable, and his associated injunction: try to refute. My problem is due to the circumstance that much activity in economics is devoted to empirical work with hypotheses that do not satisfy Popper's falsifiability criterion: should I judge that the hypotheses, and the associated empirical work, fall short of some ideal scientific standard, or should I judge that the methodology calls for what is impossible, and that it should therefore be altered? My own judgment is that many of the irrefutable hypotheses in economics are important, that they are incurably irrefutable for good and fundamental reasons, and that the activity of comparing them with observation is useful (too practically useful to be acceptably called metaphysics), so that it is the demarcation rule that should give way. Thus I want a methodology which will 'save the activity', as a theory is designed to 'save the phenomena', but just as a theory should exclude something, so should a non-empty

Refutation or comparison

On the Theory of Foreign Exchange Reserve Requirements

Preface Part I. Introductory: 1. Two preliminary matters 2. Extended preferences Part II. Iterative Controls: 3. Feedback control processes 4. First example: an externality problem 5. Second application of the control process: Lerner's problem 6. Third example of the control process: implementation of a second-best solution 7. Two examples of the control process in a mixed economy Part III. Non-convexities: 8. Non-convexities in the technology 9. Non-convexity and optimal product choice Part IV. Cooperatives: 10. Pareto-improvements and cooperatives 11. Achieving pareto-efficiency in the LMF 12. Risk-sharing in Illyria (the ELMF) Appendix: the taxation of economic rent Notes Bibliography Index.

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Information, Incentives and the Economics of Control

This 1992 book examines alternative methods for achieving optimality without all the apparatus of economic planning (such as information retrieval, computation of solutions, and separate implementation systems), or a vain reliance on sufficiently 'perfect' competition. All rely entirely on the self-interest of economic agents and voluntary contract. The author considers methods involving feedback iterative controls which require the prior selection of a 'criterion function', but no prior calculation of optimal quantities. The target is adjusted as the results for each step become data for the criterion function. Implementation is built in by the incentive structure, and all controls rely on consistency with the self-interest of individuals. The applicability of all the methods is shown to be independent of the form of ownership of enterprises: examples are given for industries which are wholly privately owned, wholly nationalized, mixed and labour-managed.

G. C. Archibald

Papers

Monetary and Value Theory: A Critique of Lange and Patinkin

Refutation or comparison

On the Theory of Foreign Exchange Reserve Requirements

Information, Incentives and the Economics of Control

Information, Incentives and the Economics of Control