Working Paper
Coexistence of money and interest-bearing securities
Abstract: A random matching model with money is used to study the nominal yield on small denomination, bearer, safe, discount securities issued by the government. There is always one steady state with matured securities circulating at par and, for some parameters, another with them circulating at a discount. In the former, a necessary and sufficient condition for a positive nominal yield on not-yet-matured securities is exogenous discriminatory treatment of them by the government. In the latter, the post-maturity discount on securities induces a deeper pre-maturity discount even without such discriminatory treatment.
Keywords: Money; Securities;
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Bibliographic Information
Provider: Federal Reserve Bank of Minneapolis
Part of Series: Working Papers
Publication Date: 1996
Number: 550