Nominal bonds and interest rates

Research output: Contribution to journalArticlepeer-review

12 Scopus citations

Abstract

In this article, I integrate the microfoundation of monetary theory with the model of limited participation to analyze the competition between nominal bonds and money. The market for government nominal bonds is centralized and Walrasian, whereas the goods market is modeled as random matches. The government imposes a legal restriction that requires all government goods to be purchased with money but not with bonds. By contrast, private agents can exchange between themselves with both money and bonds. I show that an arbitrarily small legal restriction is sufficient to prevent matured bonds from being a medium of exchange. I also analyze the effects of monetary policy with and without the legal restriction. Some of those effects differ significantly from traditional monetary models.

Original languageEnglish (US)
Pages (from-to)579-612
Number of pages34
JournalInternational Economic Review
Volume46
Issue number2
DOIs
StatePublished - May 1 2005

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Nominal bonds and interest rates'. Together they form a unique fingerprint.

Cite this