Coexistence of money and interest-bearing securities

S. Rao Aiyagari, Neil Wallace, Randall Wright

Research output: Contribution to journalArticlepeer-review

54 Scopus citations

Abstract

A random matching model with money is used to study the nominal yield on small denomination, bearer, safe, discount securities issued by the government. There is always one steady state with matured securities circulating at par and, for some parameters, another with them circulating at a discount. In the former, a necessary and sufficient condition for a positive nominal yield on not-yet-matured securities is exogenous discriminatory treatment of them by the government. In the latter, the post-maturity discount on securities induces a deeper pre-maturity discount even without such discriminatory treatment.

Original languageEnglish (US)
Pages (from-to)397-419
Number of pages23
JournalJournal of Monetary Economics
Volume37
Issue number3
DOIs
StatePublished - Jun 1996

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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