 NOMINAL BONDS AND INTEREST RATESInternational Economic Review, 2005, vol. 46, issue 2, 579-612 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. Copyright 2005 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association. Date: 2005 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ier:iecrev:v:46:y:2005:i:2:p:579-612 Ordering information: This journal article can be ordered from Access Statistics for this article International Economic Review is currently edited by Harold L. Cole More articles in International Economic Review from Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association 160 McNeil Building, 3718 Locust Walk, Philadelphia, PA 19104-6297. Contact information at EDIRC. |
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