SIMPLE DYNAMIC MODELS WITH UNCERTAINT

This study examines a set of fiscal and monetary policies in the context of a set of three infinite horizon, discrete time, representative agent optimizing models. The objective of the study is to examine the results of these policies in each model in the context of an appropriately defined random environment. This is done to examine the effects of uncertainty on the optimal behavior of agents in the model. Particularly, for the forms of uncertainty used, the effects of intertemporal information transfer (expectations) can be discussed in a quantifiable way.;For Models One and Two, the uncertainty in the economy is on the monetary side in the form of a random money supply. The basic structure of Model One combines this with the existing literature on monetary growth models. Model Two has both monetary and real sectors, as well as a government budget constraint which links the two together. This addresses a gap in the existing literature by combining a fiscal side of the economy which determines the endowment of the consumption good with the random monetary sector. In this way, the effects of fiscal and monetary changes can be studied.;Model Three uses a non-monetary variant of an optimal growth model to examine the effects of a tax placed on capital income by the government. This is also done in an uncertain environment, with the uncertainty coming from serially correlated random shocks to production. This is an extension of earlier literature, which only admitted serially independent shocks.;In all cases, the uncertainty played a prominent role in the equilibrium behavior of the economies. By varying the amount of information transferred through time through changes in the random structure of the economies, the optimal decisions in all cases were altered. This led to changes in the variability of economic aggregates such as prices, interest rates, and capital intensity.