This paper considers foreign asset holdings and macroeconomic policies in a finite-horizon model with real balances and foreign asset holdings in a small open economy. Both the long- and short-run effects of these macroeconomic policies on the economy are reexamined. The main results stand in striking contrast to those of Obstfeld (1981), who used an endogenous time preference. (1) Foreign exchange intervention leads to more foreign asset holdings and more consumption in the long run. However, it affects foreign asset accumulation ambiguously. (2) Inflation results in more foreign asset accumulation and consumption, but the effect of inflation on real balance holdings is ambiguous. (3) Government spending affects foreign asset accumulation ambiguously, and it always reduces real balances and crowds out private consumption.

With the introduction of Marshallian recursive preferences to the Sidrauski model, this paper re-examines the effects of monetary growth on the economy. It is found that an increase in the monetary growth rate decreases the steady-state value of capital stock, consumption, and real balance holding. Short-run analysis presents the mechanism that inflation affects the economy: An increase in the monetary growth rate leads to an increase of initial consumption and reduction of initial savings, which increases the instantaneous time preference rate and makes people less patient initially. Finally, Friedman's optimal monetary growth rule is also investigated in this paper.

In a stochastic monetary model with the cash-in-advance constraint and the social-status concern, this paper studies the effects of inflation and inflation variability on growth. It is shown that the Tobin effect still holds under deterministic monetary growth. The effect of inflation on growth, however, is ambiguous under stochastic monetary growth: the effect is positive when an agent's desire for social status is relatively strong and negative when this desire is relatively weak. It is also found that inflation variability always stimulates growth.

In an infinite-horizon model with Marshallian time preferences, foreign aid, foreign borrowing, and domestic capital accumulation, this paper reexamines the effects of foreign aid on domestic capital accumulation and foreign borrowing. Comparative static analysis shows that a permanent increase in foreign aid leads to an increase in both long-run capital accumulation and domestic consumption, but a decrease in foreign borrowing. Short-run analysis shows that both a permanent and a temporary increase in foreign aid makes people more patient, which leads to a rise in investment and a reduction in foreign borrowing initially.