Bonds with transactions service and optimal Ramsey policy
Citic Securities International; Australian National University
Standard New Keynesian DSGE model augmented with government bonds that provide transactions/liquidity services via a modified cash-in-advance constraint, creating an endogenous interest-rate spread between liquid government bonds and illiquid p
monopolistic competition with Rotemberg quadratic price adjustment costs; constant elasticity of demand
Table 2
Flexible-price economy without liquid bonds (FP*), Ramsey optimal policy, steady state gross inflation 0.969