Optimal Term Structure in a Monetary Economy with Incomplete Markets
The B.E. Journal of Theoretical Economics, 2018, vol. 18, issue 1, 26
In a stochastic economy, the rebalancing of short and long term government debt positions can have real effects when markets are incomplete. This paper analyzes both stationary and dynamic policy rules for the term structure of interest rates. After proving the existence of a recursive representation of equilibrium, necessary conditions for Pareto efficiency are characterized. The necessary conditions are equivalent for both stationary and dynamic policy rules.
Keywords: unconventional monetary policy; yield curve; asset span; incomplete markets; Pareto efficiency (search for similar items in EconPapers)
JEL-codes: D52 E43 E44 E52 (search for similar items in EconPapers)
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