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Determinacy of Interest Rate Rules with Bond Transaction Services in a Cashless Economy

Massimiliano Marzo () and Paolo Zagaglia

No 2008:7, Research Papers in Economics from Stockholm University, Department of Economics

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 variant of their 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 sacrosant. In general, the results of Leeper (1991) are confirmed.

Keywords: Monetary Policy; Fiscal Policy; Government Bonds; Determinacy (search for similar items in EconPapers)
JEL-codes: C68 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Date: 2008-08-11
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