REAL RETURNS ON GOVERNMENT DEBT - A GENERAL EQUILIBRIUM QUANTITATIVE EXPLORATION

We extend and apply computable general equilibrium methods to the stud y of economies with both aggregate uncertainty and uninsured household -specific uncertainty. In our economies the government issues two type s of assets: a small denomination, non-interest bearing asset, which w e call currency, and a large denomination, interest bearing asset, whi ch we call T-bills. We find that a real interest rate behavior similar to that observed in the U.S. can be sustained as equilibrium behavior in our class of economies. We also find that policy induced real inte rest rate changes that are perceived as being permanent have significa nt real effects and that these effects take a few years to be fully re alized.