A note on the societal benefits of illiquid bonds

David Andolfatto ()

Canadian Journal of Economics, 2011, vol. 44, issue 1, 133-147

Abstract: Kocherlakota (2003) provides an example of a monetary economy where efficiency is enhanced with the introduction of a nominally risk-free bond that is specifically designed to be illiquid. The societal benefit of an illiquid bond in his example, however, is transitory, and he does not characterize an optimal policy. I use an analytically tractable framework to characterize an optimal intervention and to show that the purported benefits of an illiquid bond market persist in a steady state.

JEL-codes: E41 E42 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (20)

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