A note on the societal benefits of illiquid bonds

David Andolfatto ()

Canadian Journal of Economics/Revue canadienne d'économique, 2011, vol. 44, issue 1, 133-147

Abstract: 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. Kocherlakota (2003) a donné un exemple d'une économie monétaire oú l'efficacité est accrue par l'introduction d'une débenture nominalement sans risque destinée spécifiquement àêtre illiquide. L'avantage sociétal d'une débenture illiquide, dans son exemple, est cependant transitoire, et l'auteur ne définit pas une politique optimale. On utilise un cadre de référence analytiquement soluble pour caractériser une intervention optimale, et pour montrer que les avantages attendus d'une débenture illiquide persistent en régime permanent.

Date: 2011
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https://doi.org/10.1111/j.1540-5982.2010.01626.x

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Persistent link: https://EconPapers.repec.org/RePEc:wly:canjec:v:44:y:2011:i:1:p:133-147

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