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Inflation‐Indexed Bonds and Nominal Bonds: Financial Innovation and Precautionary Motives
Inflation‐Indexed Bonds and Nominal Bonds: Financial Innovation and Precautionary Motives
- Source :
- Journal of Money, Credit and Banking. 52:721-745
- Publication Year :
- 2019
- Publisher :
- Wiley, 2019.
-
Abstract
- This paper introduces a two-period monetary general equilibrium model with proportional transaction costs on nominal and inflation-indexed bonds. This paper demonstrates that financial innovation on indexed bonds causes equilibrium interest rates of the nominal bond to increase when agents have precautionary saving motives. This result implies that ignoring precautionary motives would underestimate savers' welfare gain and overestimate borrowers' welfare gain from innovation on indexed bonds.
- Subjects :
- Inflation
Transaction cost
Economics and Econometrics
Economic theory [Social sciences]
050208 finance
Financial innovation
General equilibrium theory
media_common.quotation_subject
Bond
05 social sciences
Monetary economics
Interest rate
Nominal interest rate
Precautionary Motive
Inflation-indexed bond
Accounting
0502 economics and business
Economics
050207 economics
Finance
Inflation-indexed Bond
media_common
Subjects
Details
- ISSN :
- 15384616 and 00222879
- Volume :
- 52
- Database :
- OpenAIRE
- Journal :
- Journal of Money, Credit and Banking
- Accession number :
- edsair.doi.dedup.....5b423ac9b4f773c668d1dcdd7e7d58d3
- Full Text :
- https://doi.org/10.1111/jmcb.12609