Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/46403
Authors: 
Berentsen, Aleksander
Waller, Christopher Jude
Year of Publication: 
2010
Series/Report no.: 
CESifo working paper: Monetary Policy and International Finance 3272
Abstract: 
When agents are liquidity constrained, two options exist - sell assets or borrow. We compare the allocations arising in two economies: in one, agents can sell government (outside) bonds and in the other they can borrow by issuing (inside) bonds. All transactions are voluntary, implying no taxation or forced redemption of private debt. We show that any allocation in the economy with inside bonds can be replicated in the economy with outside bonds but that the converse is not true. However, the optimal policy in each economy makes the allocations equivalent.
Subjects: 
liquidity
financial markets
monetary policy
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JEL: 
E40
E50
Document Type: 
Working Paper

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