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The Perception of Government Bonds and Money as Net Wealth: An Integrated Approach

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  • Alpha C. Chiang

    (University of Connecticut)

  • Stephen M. Miller

    (University of Connecticutt)

Abstract

Although much work examines whether government bonds constitute net wealth, little attention focuses on whether government money does. Most analysts merely assert that government money is net wealth. In an inflationary environment, however, money experiences "expected-inflation discounting" just as bonds experience "tax discounting." Indeed, Chiang and Miller (1988) find empirical evidence suggesting that the private sector discounts money more heavily than bonds. This paper provides the theoretical underpinnings for the two types of discounting in an integrated approach, where both new money and new bonds can finance the interest on outstanding bonds.

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File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume24/V24N4P435_448.pdf
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Bibliographic Info

Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 24 (1998)
Issue (Month): 4 (Fall)
Pages: 435-448

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Handle: RePEc:eej:eeconj:v:24:y:1998:i:4:p:435-448

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Web page: http://www.ramapo.edu/eea/journal.html
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Keywords: Government Bonds; Money;

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References

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  1. Michael R. Darby, 1984. "Some pleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
  2. Seater, John J. & Mariano, Roberto S., 1985. "New tests of the life cycle and tax discounting hypotheses," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 195-215, March.
  3. Alpha C. Chiang & Stephen M. Miller, 1988. "Inflation Expectations, Wealth Perception, and Consumption Expenditure," Eastern Economic Journal, Eastern Economic Association, vol. 14(1), pages 27-38, Jan-Mar.
  4. Tanner, J Ernest, 1970. "Empirical Evidence on the Short-Run Real Balance Effect in Canada," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 2(4), pages 473-85, November.
  5. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  6. Preston J. Miller & Thomas J. Sargent, 1984. "A reply to Darby," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
  7. Buchanan, James M, 1976. "Barro on the Ricardian Equivalence Theorem," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 337-42, April.
  8. Feldstein, Martin S, 1976. "Perceived Wealth in Bonds and Social Security: A Comment," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 331-36, April.
  9. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-71, October.
  10. Seater, John J, 1982. "Are Future Taxes Discounted?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(3), pages 376-89, August.
  11. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  12. Thomas M. Supel & Richard M. Todd, 1984. "Should currency be priced like cars?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
  13. Kochin, Levis A, 1974. "Are Future Taxes Anticipated by Consumers? Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 6(3), pages 385-94, August.
  14. Kormendi, Roger C, 1983. "Government Debt, Government Spending, and Private Sector Behavior," American Economic Review, American Economic Association, vol. 73(5), pages 994-1010, December.
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