On Indexed Bonds and Aggregate Demand Elasticity |
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| Authors: | Ben L Kyer Gary E Maggs |
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| Institution: | (1) Economics, Francis Marion University, Florence, SC, USA;(2) St. John Fisher College, Rochester, NY, USA |
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| Abstract: | Bonds indexed to the price level or inflation have become popular and more common in the industrialized world. This paper
examines the impact of indexed bonds on the price level elasticity of aggregate demand. With a model of aggregate demand based
on the standard IS-LM framework and expanded to differentiate between bonds which are indexed to the price level and bonds
which are not so indexed, we find that the existence of indexed bonds decreases the elasticity of aggregate demand with respect
to the general price level.
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| Keywords: | Aggregate demand Elasticity Bond indexation |
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