This research examines the effects and relevance of temporary policies, both when policy is actually temporary, and when temporariness lies in the background as a credible threat (like a temporary capital levy which may not be observed, but it is important enough to influence the rate of capital accumulation). The distinction between temporary and permanent policy is well recognized in modern macroeconomics but permanent policy is still the dominant paradigm in open-economy macroeconomics (e.g., the gains-from-trade literature that lies at the heart of recent structural adjustment programs). The project has two main parts: Endogenous Policy and Temporary Policy. The first part investigates models in which the government maximizes social welfare without pre-commitment. In particular, the role of debt repudiation--direct or through inflation or devaluation--will be analyzed. The second part-- temporariness--will study effects of fiscal and monetary policies that are temporary or non-credible. Special attention will be placed on staggered prices, flexible exchange rates and uncertainty. Most of the questions examined in this research are relevant for open economies where international capital mobility has a significant role. One of the results suggested by the author's earlier work is that the costs of temporary (e.g. non-credible) policy can be substantial, particularly when countries have easy access to the international capital market, as during the 1970's. This hypothesis is explored in the context of different relevant scenarios. At a deeper level, the research attempts to find explanations for the prevalent phenomenon of temporariness or lack of credibility.
