Many economic models mix continuous and discrete choice problems, such as a consumption/savings trade-off alongside a labor participation decision. These problems have non-differentiable and non-concave value functions. We show that the value function is differentiable at optimal choices if the underlying utility function is the upper envelope of differentiable functions. Hence, we obtain first-order conditions that are necessary for optimality. We do not make any concavity assumptions.

This Fall semester 2010, I'll teach two courses:

• Monetary Theory and Policy for Bachelor students;
• Monetary Theory for Master students.

Students, please apply for these courses via the regular bidding system. Then, create an account on this homepage to download all the assignments and teaching material.

We study an economy with a fixed cost of production of a non-storable good. This simple friction gives rise to a rich equilibrium structure. Agents avoid the fixed cost by taking vacations and, hence, money arises endogenously to support trade between workers and vacationers. We show that agents acquire and spend money in cycles of finite length. Throughout such a "money cycle,'' agents decrease their consumption, which we interpret as the hot potato effect of inflation. We give an example where money holdings do not decrease monotonically throughout the money cycle.