English, Article, Journal or magazine article edition: Welfare improvement from restricting the liquidity of nominal bonds Shouyong Shi

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Bookmark: http://trove.nla.gov.au/version/30096
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Welfare Improvement from Restricting the Liquidity of Nominal Bonds
Author
  • Shouyong Shi
Physical Description
  • preprint
Notes
  • In this paper I examine whether a society can improve welfare by imposing a legal restriction to forbid the use of nominal bonds as a means of payments for goods. To do so, I integrate a microfounded model of money with the framework of limited participation. While the asset market is Walrasian, the goods market is decentralized and the legal restriction is imposed only in a fraction of the trades. I show that the legal restriction can improve the society's welfare. This essential role of the legal restriction persists even in the steady state, in contrast to the one-period role established in the literature. Also in contrast to the literature, the essential role of the legal restriction does not rely on households' ability to trade unmatured bonds for money after observing the taste (or endowment) shocks. Thus, the role cannot be mimicked or replaced with other policies such as discount windows
  • Nominal bonds, search, money, efficiency
  • RePEc:red:sed006:245
  • In this paper I examine whether a society can improve welfare by imposing a legal restriction to forbid the use of nominal bonds as a means of payments for goods. To do so, I integrate a microfounded model of money with the framework of limited participation. While the asset market is Walrasian, the goods market is decentralized and the legal restriction is imposed only in a fraction of the trades. I show that the legal restriction can improve the society's welfare. In contrast to the literature, this essential role of the legal restriction persists even in the steady state and it does not rely on households' ability to trade unmatured bonds for money after observing the taste (or endowment) shocks.
  • Nominal Bonds; Liquidity; Money; Efficiency.
  • RePEc:tor:tecipa:tecipa-212
Language
  • English
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