Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/111250
Authors: 
Huber, Samuel
Kim, Jaehong
Year of Publication: 
2015
Series/Report no.: 
Working Paper Series, University of Zurich, Department of Economics 193
Abstract: 
We develop a microfounded model, where agents have the possibility to trade money for government bonds in an over-the-counter market. It allows us to address important open questions about the effects of central bank purchases of government bonds, these being: under what conditions these purchases can be welfare-improving, what incentive problems they mitigate, and how large these effects are. Our main finding is that this policy measure can be welfare-improving, by correcting a pecuniary externality. Concretely, the value of money is increased as central bank's purchases of government bonds induce agents to increase their demand for money, which is welfare-improving.
Subjects: 
Monetary theory
over-the-counter markets
quantitative easing
money demand
pecuniary externality
JEL: 
E31
E40
E50
G12
Document Type: 
Working Paper

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