TY - JOUR
T1 - Efficiency improvement from restricting the liquidity of nominal bonds
AU - Shi, Shouyong
N1 - Funding Information:
An anonymous referee and an associate editor gave extensive comments on previous versions of the paper that led to significant improvements. I have also benefited from the comments by Guillaume Rocheteau, Neil Wallace and Randall Wright, and by the participants of the workshops and conferences at UQAM, Basel, University of Hong Kong, the Federal Reserve Bank of Cleveland, the Federal Reserve Bank of New York, the Society for Economic Dynamics Meeting (2006), and the Bank of Canada. I gratefully acknowledge the financial support from the Bank of Canada Fellowship and from the Social Sciences and Humanities Research Council of Canada. The opinion expressed here is my own and does not represent the view of the Bank of Canada.
Copyright:
Copyright 2008 Elsevier B.V., All rights reserved.
PY - 2008/9
Y1 - 2008/9
N2 - In a monetary search model with nominal bonds, agents face matching/taste shocks but they cannot insure, borrow or trade against such shocks. A government imposes a legal restriction that prohibits bonds from being used to buy a subset of goods. I show that this legal restriction can increase the society's welfare. In contrast to the literature, this efficiency role persists in the steady state and even when the households cannot trade assets after receiving the shocks. Moreover, it can exist when the Friedman rule is available and when the restriction is only obeyed by government agents.
AB - In a monetary search model with nominal bonds, agents face matching/taste shocks but they cannot insure, borrow or trade against such shocks. A government imposes a legal restriction that prohibits bonds from being used to buy a subset of goods. I show that this legal restriction can increase the society's welfare. In contrast to the literature, this efficiency role persists in the steady state and even when the households cannot trade assets after receiving the shocks. Moreover, it can exist when the Friedman rule is available and when the restriction is only obeyed by government agents.
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U2 - 10.1016/j.jmoneco.2008.06.002
DO - 10.1016/j.jmoneco.2008.06.002
M3 - Article
AN - SCOPUS:52749091237
SN - 0304-3932
VL - 55
SP - 1025
EP - 1037
JO - Journal of Monetary Economics
JF - Journal of Monetary Economics
IS - 6
ER -