应用经济学报告系列 (1213-6)

Topic：Why does money coexist with bonds?

Speaker: Tao Zhu (//ihome.ust.hk/~taozhu/)

Affiliation: HKUST

Time：2:00-3:30pm, November 6

Location：Room 217, Guanghua New Building

Abstract: A mechanism-design approach is applied to coexistence of money and risk-free, interest-bearing, and physically liquid government bonds. The goods market---the place where nominal assets are used as payments---is decentralized and trade in each pairwise meeting must be quid pro quo. Coexistence of money and bonds emerges in an equilibrium that is not only immune to coalition defection in each pairwise meeting but also, when by investing on some costly technique the planner can be equipped with some minimal implementation capacity, immune to renegotiation in each meeting.

More significantly, it is shown that coexistence can be socially desirable because the interest-bearing bonds alter the nominal distribution of wealth in a way that insures agents being short of nominal-income inflow opportunity (before the distribution is measured). While the interest-bearing bonds dilute incentives of sellers in the goods market (given the same nominal payment), as demonstrated in an overlapping-generations model with search, the above-mentioned driving force (i.e., the insurance function of bonds) can dominate the loss from the incentive in general equilibrium, and, in particular, coexistence is not only necessary for golden-rule optimality but also Pareto improving (for it helps initial olds).