THE DEVELOPMENT OF MONETARY GROWTH MODELS is a topic that has been receiving increasing attention from monetary economists since the appearance of Tobin's seminal paper [28]; see, e.g., [24, 25, 14, 5]. In the main, this literature is based on the simplest dynamic models, in which only relatively simple portfolio decisions can be made. Money is usually the only financial asset, so that only a limited range of government policies can be considered. One notable exception to this is [7], in which the government issues both an interest-earning bond and money. Within this framework, most of the discussion has focused on the steady-state properties of the system, dealing with such questions as the impact of an increase in the rate -of monetary growth on the capital-labor ratio, per capita real money balances, per capita consumption, and the equilibrium rate of inflation. Closely related to this topic is a body of literature dealing with such issues as the welfare costs of inflation and the determination of the optimal rate of monetary expansion; see [1, 18, 29, 16, 17, 2, 7, 22, 11]. The approaches adopted in these two areas share many common features and the traditional monetary growth model developed by Tobin [28] can be easily adapted to consider both sets of questions.l