This paper studies an economy with trading frictions, ex post heterogeneity and nominal bonds in a model à la Lagos and Wright (2005). It is shown that a strictly positive interest rate is a sufficient condition for the allocation with nominal bonds to be welfare improving. This result comes from the protection against the inflation tax.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
9417.
Find related papers by JEL classification: H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management
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