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Determinacy of interest rate rules with bond transaction services in a cashless economy

Massimiliano Marzo and Paolo Zagaglia

No 24/2008, Research Discussion Papers from Bank of Finland

Abstract: Canzoneri and Diba (2004) show that the Taylor principle is not a panacea for equilibrium determinacy in a model where bonds and money provide liquidity services to households. We consider a cashless New Keynesian model with two types of government bonds. One bond provides transaction services, whereas the other is used only as a store of value. We show that the Taylor principle is still sacrosanct, and that the results of Leeper (1991) are confirmed. Keywords: monetary policy, fiscal policy, government bonds, determinacy JEL classification numbers: E52, C68

JEL-codes: E52 C68 (search for similar items in EconPapers)
Date: 2008-08-08
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