On the Pareto efficiency of term structure targeting policies
2015
In a stochastic economy, monetary policies that rebalance a central bank’s portfolio of short and long term government debt (term structure targeting) can have real effects. When the number of assets equals the number of states of uncertainty, however, this paper shows that the equilibrium allocation is Pareto efficient. Further, all policies with the same short-term interest rate targets support the same equilibrium allocation.
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