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"An up-to-date analysis of monetary policy, with a particular focus on the United Kingdom. The book considers questions about how it actually works in practice, and what it should do. It also considers many of the contributions made by economists, both theoretical and empirical, which shed light on monetary policy. One of the aims of the book is to impart this knowledge in an intelligible way to those with a reasonable grasp of basic economics"--

AbstractTo go beyond the efficient markets hypothesis (EMH) we suppose that the stock market can be in one of three states: (1) a fundamental state, where share prices are determined largely as in the EMH; (2) a bubble or bull market state, where share prices are above their fundamental levels but are expected to continue to rise further, and (3) a bear market state, where shares are held exclusively by irrational agents and rational agents cannot exploit the overvaluation because of short‐selling constraints. Also, heterogeneous rational expectations may help explain some features of stock market behaviour.

ABSTRACTA model of an open economy, in which two goods, a tradeable and a non‐tradeable, are distinguished, is constructed. There is also an intermediate input (oil) which is both produced domestically and traded, and which is used as an input in the traded sector. There are two assets, money and internationally traded bonds. In the model the effects of various changes, including an increase in the money supply, and increases in both the world price of, and the domestic output of, oil, are analysed.

ABSTRACTWe develop a model of voluntary gradual franchise extension and growth based on the idea that voting is an information aggregation mechanism. A larger number of voters means that more correct decisions are made, hence increasing output, but also implies that any incremental output must be shared among more individuals. These conflicting incentives lead to a dynamic model of franchise extensions that is consistent with several real world episodes, including female enfranchisement. The model also predicts that in certain circumstances growth and enfranchisement will be accompanied by Kuznets curve type behaviour in inequality. Contrary to the preceding literature these conclusions do not rest on incentives for strategic delegation.

We develop a model of a small open economy with optimizing, infinitely lived agents. They have monopoly power over the price of their labour, and wage setting is staggered. We consider the effects of an unanticipated increase in the money supply. In all cases, the exchange rate depreciates immediately to its long‐run value with no overshooting. With unitary elasticity of substitution in preferences between home and foreign goods, output rises instantaneously but gradually returns to its initial value in the long run. Trade remains balanced at all times. With an elasticity of substitution above unity, there is a trade surplus in the short run and a deficit in the long run, as permanently higher net foreign assets are accumulated. Convergence to the steady state is faster, and thus output persistence is smaller. With unitary elasticity the dynamics are the same as in an equivalent closed economy, so, to the extent that an elasticity greater than one is plausible for an open economy, we conclude that openness reduces output persistence.

A model is considered in which an entrepreneur uses debt to finance a risky investment project. He may in certain circumstances credibly threaten default on the loan, which is then renegotiated. However, lenders will never lend so much that default is credibly threatened in all states. There exists a 'credit ceiling' which, if binding, implies underinvestment. The paper discusses the determinants of the credit ceiling and derives some comparative statics results. For example, it is shown that the credit ceiling is raised by a mean‐preserving spread of the firm's revenues. Also, a borrower may benefit from a reduction in his bargaining power.