Tobin (1958) has argued that in the face of potential capital losses on bonds it is reasonable to hold cash as a means to transfer wealth over time. It is shown that this assertion cannot be sustained taking into account the evolution of wealth of cash holders versus non cash holders. Cash holders will be driven out of the market in the long run by traders who only use a (risky) long-lived asset to transfer wealth.
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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number
02-18.
Length: 10 pages Date of creation: Dec 2002 Date of revision: Handle: RePEc:kud:kuiedp:0218
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