This paper examines a search model of money and public bonds in which coordination frictions lead to multiple, Pareto ranked equilibria. Whether money and bonds are substitutes or complements, is not a primitive of the economy, but an equilibrium outcome. There exists an equilibrium resembling a liquidity trap, in which money and bonds are perfect substitutes, interest rates are zero, and monetary policy is ineffective; and a superior equilibrium in which money and bonds are complements, interest rates are positive and monetary policy has a liquidity effect. On this view, the liquidity trap is a belief-driven phenomenon.

Araujo, L., & Ferraris, L. (2020). Money, Bonds and the Liquidity Trap. JOURNAL OF MONEY, CREDIT, AND BANKING, 52(7 (October 2020)), 1853-1867 [10.1111/jmcb.12697].

Money, Bonds and the Liquidity Trap

Ferraris, L
2020

Abstract

This paper examines a search model of money and public bonds in which coordination frictions lead to multiple, Pareto ranked equilibria. Whether money and bonds are substitutes or complements, is not a primitive of the economy, but an equilibrium outcome. There exists an equilibrium resembling a liquidity trap, in which money and bonds are perfect substitutes, interest rates are zero, and monetary policy is ineffective; and a superior equilibrium in which money and bonds are complements, interest rates are positive and monetary policy has a liquidity effect. On this view, the liquidity trap is a belief-driven phenomenon.
Si
Articolo in rivista - Articolo scientifico
Scientifica
liquidity trap; monetary policy; money; public bonds;
English
1853
1867
15
Araujo, L., & Ferraris, L. (2020). Money, Bonds and the Liquidity Trap. JOURNAL OF MONEY, CREDIT, AND BANKING, 52(7 (October 2020)), 1853-1867 [10.1111/jmcb.12697].
Araujo, L; Ferraris, L
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10281/311146
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