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Which improves welfare more: A nominal or an indexed bond?

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Author Info
Michael Magill (Department of Economics, University of Southern California, Los Angeles, CA 90089-0253, USA)
Martine Quinzii (Department of Economics, University of California, Davis, CA 95616-8578, USA)

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Abstract

Economists have long argued that loan contracts should be indexed to remove the risks arising from fluctuations in the purchasing power of money: indexation however while eliminating one risk, substitutes another, arising from fluctuations in relative prices of goods. We present a theoretical framework which permits the relative merits of a nominal versus an indexed bond to be assessed in a general equilibrium setting.

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Publisher Info
Article provided by Springer in its journal Economic Theory.

Volume (Year): 10 (1997)
Issue (Month): 1 ()
Pages: 1-37
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Handle: RePEc:spr:joecth:v:10:y:1997:i:1:p:1-37

Note: Received: July 31, 1995; revised version August 7, 1996
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Find related papers by JEL classification:
D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Michael Magill & Martine Quinzii, . "Equity, Bonds, Growth And Inflation In A Quadratic Infinite Horizon Economy," Department of Economics 98-08, California Davis - Department of Economics. [Downloadable!]
  2. Patrick Minford & Eric Nowell & Bruce Webb, 2003. "Nominal Contracting and Monetary Targets -- Drifting into Indexation," Economic Journal, Royal Economic Society, vol. 113(484), pages 65-100, January. [Downloadable!] (restricted)
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