Topic
Consol
About: Consol is a research topic. Over the lifetime, 14 publications have been published within this topic receiving 395 citations.
Papers
TL;DR: In this paper, a tax-smoothing objective is used to assess the optimal composition of public debt with respect to maturity and contingencies, and the objective motivates the government to make its debt payouts contingent on the levels of public outlay and the tax base.
Abstract: A tax-smoothing objective is used to assess the optimal composition of public debt with respect to maturity and contingencies. This objective motivates the government to make its debt payouts contingent on the levels of public outlay and the tax base. If these contingencies are present, but asset prices of non-contingent indexed debt are stochastic, then full tax smoothing dictates an optimal maturity structure of the non-contingent debt. If the certaintyequivalent outlays are the same for each period, then the government should guarantee equal real payouts in each period, that is, the debt takes the form of indexed consols. This structure insulates the government’s budget constraint from unpredictable variations in the market prices of indexed bonds of various maturities. If contingent debt is precluded, then the government may want to depart from a consol maturity structure to exploit covariances among public outlay, the tax base, and the term structure of real interest rates. However, if moral hazard is the reason for the preclusion of contingent debt, then this consideration also deters exploitation of these covariances and tends to return the optimal solution to the consol maturity structure. The issue of nominal bonds may allow the government to exploit the covariances among public outlay, the tax base, and the rate of inflation. But if moral-hazard explains the absence of contingent debt, then the same reasoning tends to make nominal debt issue undesirable. The bottom line is that an optimal-tax approach to public debt favors bonds that are indexed and long term. c 2003 Peking University Press
107 citations
TL;DR: In this article, five pitfalls commonly encountered in estimating the yield on British Consols are identified and discussed, and a corrected monthly series of yield on Consols between 1850 and 1914 is presented.
Abstract: Five pitfalls commonly encountered in estimating the yield on British Consols are identified and discussed herein. The most difficult question is whether Consol prices in the later 1890s reflected expectations of a conversion of the Consol stock in 1923. This is equivalent to asking whether security markets in the 1890s regarded the then extremely low interest rates to be a temporary or permanent phenomenon. Predictions from estimated equations for the yield spread between other high-class investments and Consols are used to determine this question. A corrected monthly series of the yield on Consols between 1850 and 1914 is presented.
75 citations
TL;DR: In this article, the authors confirm a version of a conjecture by Fischer Black regarding consol rate models for the term structure of interest rates, which is based on an extension of the theory for the forward-backward stochastic differential equations to infinite-horizon settings.
Abstract: This paper confirms a version of a conjecture by Fischer Black regarding consol rate models for the term structure of interest rates A consol rate model is one in which the stochastic behavior of the short rate is influenced by the consol rate Since the consol rate is itself determined, via the usual discounted present value formula, by the short rate, such models have an inherent fixed point aspect Under an equivalent martingale measure, purely technical regularity conditions are given for the stochastic differential equation defining the short rate and the consol rate to be consistent with the definition of the consol rate as the yield on a perpetual annuity The results are based on an extension of the theory for the forward-backward stochastic differential equations to infinite-horizon settings Under additional compatibility conditions, we also show that the consol rate is uniquely determined and given as a function of the short rate
69 citations
Posted Content•
TL;DR: In this article, the authors studied how a fiat money might come to be used in transactions when an identically marketable, dividend-bearing asset, a consol, is also available.
Abstract: One of the main challenges for monetary economics is to explain the use of assets that are dominated in rate-of-return as media of exchange.We use experimental methods to study howa fiat money might come to be used in transactions when an identically marketable, dividend-bearing asset, a consol, is also available. Our experimental economies, which have an overlapping generations structure, have the property that the only stationary rational expectations equilibria (SREE) require exclusive use of the consol as the medium of exchange. In a baseline treatment, agents use the consol exclusively, as would occur in an SREE. However, in other treatments, we observe episodes of rate-of-return dominance,with consistent use of fiat money as a medium of exchange. The results show that two properties of our economies are associated with the rate of return dominance anomaly. The first is a history of trading with fiat money, prior to the introduction of the consol. The second is the timing of the dividend payment; when the dividend payment follows the execution of trades between generations, hoarding of the consol occurs on the part of the old, who earn dividends by hoarding. In our economies, settling transactions with a dividend-bearing asset does not improve allocations over those resulting from trading with fiat money.
50 citations
TL;DR: In this paper, the authors studied how a fiat money might come to be used in transactions when an identically marketable, dividend-bearing asset, a consol, is also available.
Abstract: One of the main challenges for monetary economics is to explain the use of assets that are dominated in rate-of-return as media of exchange. We use experimental methods to study how a fiat money might come to be used in transactions when an identically marketable, dividend-bearing asset, a consol, is also available. Our experimental economies, which have an overlapping generations structure, have the property that the only stationary rational expectations equilibria (SREE) require exclusive use of the consol as the medium of exchange. In a baseline treatment, agents use the consol exclusively, as would occur in an SREE. However, in other treatments, we observe episodes of rate-of-return dominance,with consistent use of fiat money as a medium of exchange. The results show that two properties of our economies are associated with the rate of return dominance anomaly. The first is a history of trading with fiat money, prior to the introduction of the consol. The second is the timing of the dividend payment; when the dividend payment follows the execution of trades between generations, hoarding of the consol occurs on the part of the old, who earn dividends by hoarding. In our economies, settling transactions with a dividend-bearing asset does not improve allocations over those resulting from trading with fiat money.
48 citations
Related Topics (5)
Performance Metrics
| Year | Papers |
|---|---|
| 2021 | 1 |
| 2013 | 1 |
| 2006 | 1 |
| 2004 | 1 |
| 2003 | 1 |
| 2002 | 1 |