Real returns on government debt: a general equilibrium quantitative exploration

Javier Díaz-Giménez and Edward Prescott

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: We extend and apply computable general equilibrium methods to the study of economies with both aggregate uncertainty and uninsured household-specific uncertainty. In our economies the government issues two types of assets: a small denomination, non-interest bearing asset, which we call currency, and a large denomination, interest bearing asset, which we call T-bills. We find that a real interest rate behavior similar to that observed in the U.S. can be sustained as equilibrium behavior in our class of economies. We also find that policy induced real interest rate changes that are perceived as being permanent have significant real effects and that these effects take a few years to be fully realized.

Keywords: Quantitative; General; Equilibrium.; Real; Returns; Heterogeneous; Agents; Liquidity; Constraints (search for similar items in EconPapers)
Date: 1994-11
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Journal Article: Real returns on government debt: A general equilibrium quantitative exploration (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:2968

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