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): E02 - Institutions and the Macroeconomy and E43 - Interest Rates: Determination, Term Structure, and Effects