Research Discussion Papers, Bank of Finland
No 24/2008:
Determinacy of interest rate rules with bond transaction services in a cashless economy
Massimiliano Marzo ()
and Paolo Zagaglia ()
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.
Keywords: monetary policy; fiscal policy; government bonds; determinacy; (follow links to similar papers)
JEL-Codes: C68; E52; (follow links to similar papers)
36 pages, October 16, 2008
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