Societal Benefits of Nominal Bonds

Posted: 14 Aug 2008

See all articles by Narayana Kocherlakota

Narayana Kocherlakota

University of Minnesota - Twin Cities - Department of Economics

Date Written: August 1, 2000

Abstract

In this paper, I provide a possible explanation of why nominally risk-free bonds are essential in monetary economies. I argue that the role of nominal bonds is to serve as record-keeping devices in intertemporal exchanges of money. I show that bonds can only serve this role if they are illiquid (costly to exchange for goods). Finally, I show that in economies in which nominal bonds are essential, welfare and nominal interest rates are both positively associated with the supply of illiquid bonds (if that supply is small).

Keywords: Money, Nominal Bonds

JEL Classification: E42, C78, E58

Suggested Citation

Kocherlakota, Narayana, Societal Benefits of Nominal Bonds (August 1, 2000). Available at SSRN: https://ssrn.com/abstract=1223602

Narayana Kocherlakota (Contact Author)

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
Minneapolis, MN 55455
United States
612-625-5318 (Phone)
612-624-0209 (Fax)

HOME PAGE: http://www.econ.umn.edu/~nkocher/

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