Real returns on government debt: A general equilibrium quantitative exploration

Javier Díaz-Giménez, Edward C. Prescott

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

We extend and apply computable general equilibrium methods to the study of economies with both aggregate uncertainty and uninsured household-specific uncertainty. In our economies the government issues two types of assets: a small denomination, non-interest bearing asset, which we call currency, and a large denomination, interest bearing asset, which we call T-bills. We find that a real interest rate behavior similar to that observed in the U.S. can be sustained as equilibrium behavior in our class of economies. We also find that policy induced real interest rate changes that are perceived as being permanent have significant real effects and that these effects take a few years to be fully realized.

Original languageEnglish (US)
Pages (from-to)115-137
Number of pages23
JournalEuropean Economic Review
Volume41
Issue number1
DOIs
StatePublished - Jan 1997
Externally publishedYes

Keywords

  • Heterogeneous agents
  • Liquidity constraints
  • Quantitative general equilibrium
  • Real returns

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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