On the deflationary effect of government's indexed bonds |
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Authors: | Nissan Liviatan David Levhari |
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Institution: | Hebrew University, Jerusalem, Israel |
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Abstract: | We consider government intervention in the capital market by selling indexed bonds and buying non-indexed bonds of equal value. If the profits or losses of this operation are transmitted to the public which takes this into consideration then the government's intervention may have no effect on the economy. Insofar as the assumptions of the model permit real effects of the foregoing policy the impact on the economy tends to be deflationary. In analyzing this tendency a distinction is made between the case where the government intervenes in an existing market and the case where it creates a new market for indexed bonds. |
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