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Government Financing and Interest Rates in a Three Assets Sidrauski-based Model

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  • Eduardo Pozo

    (University of Zaragoza, Spain)

Abstract

In this paper we formulate a Sidrauski-based model with three assets in which we introduce public bonds into the utility function of agents, with the purpose of analyzing some related questions with regards to the consequences of the financial activity of the government and the determination of the interest rates. The results obtained permit us to conclude that, within this framework: 1.-financial decisions of government will not influence the steady state levels of consumption and capital, and 2.-the inflation rate affects the real interest rate on bonds negatively.

Suggested Citation

  • Eduardo Pozo, 2000. "Government Financing and Interest Rates in a Three Assets Sidrauski-based Model," Macroeconomics 0004017, EconWPA.
  • Handle: RePEc:wpa:wuwpma:0004017
    Note: Type of Document - Acrobat PDF; prepared on IBM PC ; to print on A4 paper; pages: 12
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    References listed on IDEAS

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    1. Fischer, Stanley, 1972. "Money, income, wealth, and welfare," Journal of Economic Theory, Elsevier, vol. 4(2), pages 289-311, April.
    2. Drazen, Allan, 1981. "Inflation and capital accumulation under a finite horizon," Journal of Monetary Economics, Elsevier, vol. 8(2), pages 247-260.
    3. Calvo, Guillermo A, 1979. "On Models of Money and Perfect Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(1), pages 83-103, February.
    4. Danthine, Jean-Pierre & Donaldson, John B, 1986. "Inflation and Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 54(3), pages 585-605, May.
    5. Carmichael, Jeffrey & Stebbing, Peter W, 1983. "Fisher's Paradox and the Theory of Interest," American Economic Review, American Economic Association, vol. 73(4), pages 619-630, September.
    6. Dutkowsky, Donald H & Foote, William G, 1988. "The Demand for Money: A Rational Expectations Approach," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 83-92, February.
    7. Fried, Joel & Howitt, Peter, 1983. "The Effects of Inflation on Real Interest Rates," American Economic Review, American Economic Association, vol. 73(5), pages 968-980, December.
    8. Mitchell, Douglas W, 1985. " Expected Inflation and Interest Rates in a Multi-asset Model: A Note," Journal of Finance, American Finance Association, vol. 40(2), pages 595-599, June.
    9. Siegel, Jeremy J, 1983. "Technological Change and the Superneutrality of Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(3), pages 363-367, August.
    10. Barr, D G & Cuthbertson, Keith, 1991. "Neoclassical Consumer Demand Theory and the Demand for Money," Economic Journal, Royal Economic Society, vol. 101(407), pages 855-876, July.
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    More about this item

    Keywords

    Government Financing; Money Demand; Inflation Rate; Interest Rates; Sidrauski Model.;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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