Wealth distribution, inflation tax, and societal benefits of illiquid bonds

Young Sik Kim, Manjong Lee

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)


Illiquid nominal government bonds are shown to have two opposing effects on welfare. First, the relatively poor choose to top-up money balances for future consumption by purchasing nominal bonds at a discount. The wealth distribution becomes more centered with a smaller consumption deviation from the first best. Second, the higher inflation tax on monetary wealth to finance interest payments makes money less valuable, so that the quantity of output produced in exchange for money decreases. The trade-off between the welfare-enhancing effect on wealth distribution and the distortionary effect on output implies the socially optimal discount rate and liquidity.

Original languageEnglish
Pages (from-to)809-830
Number of pages22
JournalJournal of Money, Credit and Banking
Issue number5
Publication statusPublished - 2009 Aug


  • Coexistence
  • Fiat money
  • Illiquid bond
  • Matching model

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


Dive into the research topics of 'Wealth distribution, inflation tax, and societal benefits of illiquid bonds'. Together they form a unique fingerprint.

Cite this