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Int. J. Financial Stud. 2018, 6(1), 23; https://doi.org/10.3390/ijfs6010023

Macroeconomic Stability in a Model with Bond Transaction Services

1
Department of Management, Università di Bologna, Via Capo di Lucca 34, 40126 Bologna, Italy
2
Rimini Centre for Economic Analysis and School of Political Science (Ravenna Campus), Università di Bologna, Via degli Ariani 1, 48121 Ravenna, Italy
*
Authors to whom correspondence should be addressed.
Received: 31 December 2017 / Revised: 11 February 2018 / Accepted: 12 February 2018 / Published: 22 February 2018
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Abstract

Cochrane (2014) shows that high-powered money balances and short-term government bonds can be considered as perfect substitutes for the U.S economy during the past twenty years. We build on this claim and consider a variant of the standard cashless new-Keynesian model with two types of government bonds, which can be thought of as short- and long-term bonds. The first one has a macroeconomic role in the sense that it provides transaction services in addition to generating a yield. The other type of government bond pays only an interest rate. Consistent with previous findings, the Taylor principle is not a panacea for equilibrium determinacy in a model without money. When the government bond market matters beyond the need for fiscal solvency, monetary policy rules do not need to comply with the Taylor principle for unique equilibria to exist. View Full-Text
Keywords: monetary policy; fiscal policy; government bonds; equilibrium determinacy; interest rates monetary policy; fiscal policy; government bonds; equilibrium determinacy; interest rates
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Marzo, M.; Zagaglia, P. Macroeconomic Stability in a Model with Bond Transaction Services. Int. J. Financial Stud. 2018, 6, 23.

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Int. J. Financial Stud. EISSN 2227-7072 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
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