The importance of money and monetary policy in general equilibrium models of open and closed economies

This dissertation consists of three essays that investigate the role of money and monetary policy in closed and open economies. Each essay addresses a distinct aspect of an individual's decision to hold real balances. While each essay is unique in contribution, they are linked, as discussed in Chapter One, by their treatment of money in a general-equilibrium framework.;Chapter Two studies consumer demand for real balances by allowing money to enter into an aggregate utility function as an asset that provides liquidity services. The essay extends existing literature by investigating a money-in-the-utility-function model under a variety of specifications of the representative agent's objective function. The coefficients of the Euler equations derived from the model are estimated and compared across specifications of the utility function and across data sets. The results provide support for the view that liquidity services significantly contribute to utility. The more parsimonious forms of the utility function appear to achieve the best fit with the data.;Chapter Three contributes to previous work by developing an explicit link between the distribution of income and monetary-policy preferences. This essay examines agents' policy preferences over short-run monetary-policy responses to real disturbances when agents are heterogeneous in their factor ownership and diversification opportunities are limited. The study explores whether different groups of agents desire different paths for monetary policy. When the speed of price adjustment differs across sectors, monetary responses can offset the distributional effects of real shocks by changing relative prices and the real returns to factors. The simulations reveal that factor ownership and the structure of domestic asset markets are critical determinants of some agents' preferred monetary responses.;Chapter Four emphasizes the role of anticipated inflation in the international transmission of monetary-policy fluctuations. In the model, foreign monetary policy influences real domestic activity through an inflation-tax channel. Anticipated inflation affects the supplies of factors, which are determined endogenously by utility-maximizing households. The transmission mechanism depends on the substitutability of the two consumption goods and on the nominal exchange-rate regime. The essay compares the welfare cost of the inflation tax across countries under alternative exchange-rate policies.