"CONVENTIONAL" MONETARY POLICY IN OLG MODELS : REVISITING THE ASSET-SUBSTITUTION CHANNEL

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

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Detail(s)

Original languageEnglish
Pages (from-to)875-892
Number of pages18
Journal / PublicationInternational Economic Review
Volume64
Issue number3
Online published12 Dec 2022
Publication statusPublished - Aug 2023

Abstract

Conventional monetary policy involves actions by the monetary and fiscal authorities: the former sets a nominal interest rate and the latter sets lump-sum taxes to finance the implied flow of interest payments on government debt. We model such policy within an overlapping generations framework and show that absent any other frictions the magnitude of the nominal interest rate gives rise to asset substitution between government debt and either private debt or capital-substitution that has both real and nominal effects. Such substitution is not in standard New Keynesian models because their dynastic specification implies that government debt is not net wealth.

Research Area(s)

  • DEBT

Bibliographic Note

Full text of this publication does not contain sufficient affiliation information. With consent from the author(s) concerned, the Research Unit(s) information for this record is based on the existing academic department affiliation of the author(s).

Citation Format(s)

"CONVENTIONAL" MONETARY POLICY IN OLG MODELS: REVISITING THE ASSET-SUBSTITUTION CHANNEL. / HU, Guanliang; MA, Guoxuan; QIAO, Wei et al.
In: International Economic Review, Vol. 64, No. 3, 08.2023, p. 875-892.

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review