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Determinacy of interest rate rules with bond transaction services in a cashless economy

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  • Marzo, Massimiliano
  • Zagaglia, Paolo

Abstract

Canzoneri and Diba (2004) show that the Taylor principle is not a panacea for equilibrium determinacy in a model where bonds and money provide liquidity services to households. We consider a cashless New Keynesian model with two types of government bonds. One bond provides transaction services, whereas the other is used only as a store of value. We show that the Taylor principle is still sacrosanct, and that the results of Leeper (1991) are confirmed.

Suggested Citation

  • Marzo, Massimiliano & Zagaglia, Paolo, 2008. "Determinacy of interest rate rules with bond transaction services in a cashless economy," Bank of Finland Research Discussion Papers 24/2008, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp2008_024
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    Cited by:

    1. M. Marzo & P. Zagaglia, 2012. "Bonds Transaction Services and the Term Structure of Interest Rates: Implications for Equilibrium Determinacy," Working Papers wp821, Dipartimento Scienze Economiche, Universita' di Bologna.
    2. Massimiliano Marzo & Paolo Zagaglia, 2011. "Equilibrium Selection in a Cashless Economy with Transaction Frictions in the Bond Market," Working Paper series 28_11, Rimini Centre for Economic Analysis.

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    More about this item

    Keywords

    monetary policy; fiscal policy; government bonds; determinacy;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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