Outside versus inside bonds: A Modigliani-Miller type result for liquidity constrained economies

Arbeitspapier

When agents are liquidity constrained, two options exist - sell assets or borrow. We compare the allocations arising in two economies: in one, agents can sell government (outside) bonds and in the other they can borrow by issuing (inside) bonds. All transactions are voluntary, implying no taxation or forced redemption of private debt. We show that any allocation in the economy with inside bonds can be replicated in the economy with outside bonds but that the converse is not true. However, the optimal policy in each economy makes the allocations equivalent.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 3272

Classification and Topics

• Classification: Wirtschaft ; Money and Interest Rates: General ; Monetary Policy, Central Banking, and the Supply of Money and Credit: General
• Subject: liquidity ; financial markets ; monetary policy ; search ; Kapitalstruktur ; Verschuldungsrestriktion ; Geldpolitik ; Geldtheorie ; Suchtheorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Berentsen, Aleksander ; Waller, Christopher Jude
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/46403
• Last update: 10.03.2025, 11:42 AM CET