Creator: Sargent, Thomas J. and Wallace, Neil. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 211 Abstract:
In a general equilibrium setting, we study versions of the proposal to pay interest on reserves at the market rate. We argue that the proposal makes the demand for total reserves indeterminate whether interest is paid on total reserves or on required reserves only. One consequence is that tax financing of the proposal gives rise to a continuum of equilibria, equilibria which differ in real returns and consumption allocations. Another consequence is that an attempt to finance the proposal through earnings on the central bank’s portfolio either gives rise to an equilibrium with a zero nominal interest rate or fails to give rise to an equilibrium.
Keyword: Interest rates, General equilibrium models, and Reserves Subject (JEL): D58 - General equilibrium and disequilibrium - Computable and other applied general equilibrium models and E43 - Money and interest rates - Determination of interest rates ; Term structure of interest rates
Creator: Aiyagari, S. Rao., Wallace, Neil., and Wright, Randall. Series: Lucas expectations anniversary conference Abstract:
A pairwise random meeting model with money is used to study the nominal yield on pure-discount, default-free securities that are issued by the government. There is one steady state with matured securities at par and, for some parameters, another with them at a discount. In the former, exogenous rejection of unmatured securities by the government is necessary and sufficient for such a steady state to display a positive nominal yield on unmatured securities. In the latter, the post-maturity discount on securities induces a deeper pre-maturity discount even if there is no exogenous rejection of unmatured securities.
Keyword: Maturity, Government securities, and Interest rates Subject (JEL): E43 - Money and interest rates - Determination of interest rates ; Term structure of interest rates and E02 - Macroeconomics and monetary economics - General - Institutions and the macroeconomy
Creator: Wallace, Neil. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 347 Description:
The Harry G. Johnson Lecture, presented at the 1987 A.U.T.E. and the Royal Economic Society Conference, Aberyswyth, April 1-4.
Keyword: Inside money, Equilibrium model, Monetary theory, Assets, Outside money, and Currency Subject (JEL): G12 - General financial markets - Asset pricing ; Trading volume ; Bond interest rates and E40 - Money and interest rates - General
Creator: Bryant, John B. and Wallace, Neil. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 189 Keyword: Prohibition, Government debt, Rate of return dominance, and Private currency Subject (JEL): E52 - Monetary policy, central banking, and the supply of money and credit - Monetary policy and E40 - Money and interest rates - General