The Societal Benefits of Outside versus Inside Bonds
We use a general equilibrium model of money to compare the use of `illiquid' government-issued bonds (outside bonds) versus credit (inside bonds) to alleviate buyers' liquidity constraints. We assume all transactions must be voluntary. This implies that the central bank cannot run deflation via lump-sum taxation and that agents must voluntarily redeem their outstanding private debt obligations. When the steady state outside bond to money ratio is taken as given, the allocation with inside bonds is more likely to dominate the allocation with inside bonds. When this ratio is also a policy choice, then the allocation with illiquid outside bonds dominates the inside bond allocation.
|Date of creation:||2007|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
More information through EDIRC
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.:
- Kehoe, Timothy J & Levine, David K, 2001. "Liquidity Constrained Markets versus Debt Constrained Markets," Econometrica, Econometric Society, vol. 69(3), pages 575-598, May.
- Shouyong Shi, 2006.
"Welfare Improvement from Restricting the Liquidity of Nominal Bonds,"
tecipa-212, University of Toronto, Department of Economics.
- Shouyong Shi, 2006. "Welfare improvement from restricting the liquidity of nominal bonds," 2006 Meeting Papers 245, Society for Economic Dynamics.