Publication Type

Working Paper

Version

publishedVersion

Publication Date

3-2023

Abstract

We study a multiperiod model with a nominal bond that matures in one period and identify the set of e¢ cient allocations that can be sustained as Walrasian equilibria with heterogeneous forecasts. We next add a long maturity bond, which under perfect foresight would be a redundant asset, and show that it fundamentally expands the set of e¢ cient allocations that can be sustained as Walrasian equilibria. Indeed all wealth transfers compatible with e¢ ciency can arise endogenously. The key feature driving this conclusion are forecasting errors, which lead to ex post arbitrage opportunities that induce these income transfers.

Discipline

Economic Theory

Research Areas

Economic Theory

First Page

1

Last Page

29

Publisher

Central Bank Communication, Working Papers No. 046

City or Country

Tokyo

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