We present a new simple and short proof of the existence ofequilibria in the classical single-sector growth model.

Models of the exchange process based on search theory can be used toanalyze the features of objects that make them more or less likely toemerge as money in equilibrium. These models illustrate thetrade-off between endogenous acceptability (an equilibrium property)and intrinsic characteristics of goods, such as storability or recognizability. We look at how the relativesupply and demand for various goods affect their likelihood ofbecoming money. Intuitively, goods in high demand and/or low supplyare more likely to appear as commodity money, subject to thequalification that which object ends up circulating as a medium ofexchange depends at least partly on convention. Welfare propertiesand fiat money are discussed.

Futures-market exchanges guarantee the performance of all contractsto encourage active trading between anonymous partners. Traders buyfrom or sell to the clearinghouse. The exchanges rely primarily on amargin system — traders post a performance bond that they forfeit ifthey default — to manage their risk exposure. The marketvalue of the performance guarantee is the amount a trader would have to pay toinsure his performance if there were no exchange guarantee.Anunderpriced guarantee subsidizes high-risk traders and ultimatelyundermines the credibility of the exchange's commitment to perform.An adequate margin policy fairly prices the exchange performanceguarantee within an (economically insignificant) varepsilonneighborhood. I show that the value of a call (put) option with astrike price equal to the futures price minus (plus) the margin is anupper bound to the market value of the exchange's performanceguarantee. The probability that the futures price change exceeds themargin is the probability that the option expires “in the money.” Iestimate the value of the option on the December S&P 500 futurescontract during the market crash in October 1987 to illustrate thetechnique. For the first half of the month the value of theperformance guarantee was fairly priced. On the day of the crash itwas underpriced by as much as 10% of the value of the futurescontract. Futures-market margin committees moved quickly; by the endof the month the value of the performance guarantee was fairly priced.

This paper considers a nonborrowed-monetary-base VAR and a targetsand instrument framework favored by the monetarists to resolve thepuzzles thrown up by monetary VAR studies.The results show thatnonborrowed-monetary-base shocks produce responses consistent with apriori expectations about the effects of monetary policy on interestrates, prices, and output.

We demonstrate that multiple stationary rational-expectationsequilibria exist in a version of Lucas's island economy. Theexistence of these equilibria follows from the fact that there is an indeterminate set of monetary equilibria in the two-period overlapping-generations model. We show how to construct stationaryrational-expectations equilibria by randomizing over the set ofnonstationary monetary equilibria.In some of our equilibria, apositively sloped Phillips curve exists even though our economycontains no signal-extraction problem as in the original Lucas paper.Our equilibria are indexed by beliefs and are examples of theexistence of sunspot equilibria in which allocations may differacross states of nature for which preferences, technology, andendowments are identical.Our technique for constructing stationarysunspot equilibria should prove useful in a wide class of models inwhich an indeterminate stationary equilibrium exists.

The market economy is modeled as a decentralized joint productionsystem. Markets in such an economy require the use of money or creditinstruments to facilitate exchange. As a result, market economies areat risk for monetary instability induced by real-side productioncoordination failure. In particular, economies decentralized viacentralized wholesaling markets are subject to precipitous collapses.The most stable monetary system is trade in specie. However, therevery likely is a scarcity of specie, which generates inefficiency anddiscourages production. There is, then, a need for an elasticcurrency. Bank-issued bills of exchange are a perfectly elasticmedium and eliminate the scarcity of specie and its attendantinefficiency, but are a less stable monetary system than is trade inspecie. In the trade-off between elasticity and stability, fiduciarycurrency (or fiduciary deposits) lies between specie and bank-issuedbills of exchange.