21Chp5-Econ3310 - Bond Market Equilibrium Interest Rates...

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Unformatted text preview: Bond Market Equilibrium Interest Rates Market for Money: LPF Equilibrium Interest Rates in LPF So instead, Keynes focuses on equilibrium in the market for money. Interest rates that clear the bond market also clear the market for money (= the money market). Clearing in the bond market B d − B s = 0 implies clearing in the money market M s − M d = 0. Total wealth: B d + M d = B s + M s or B d − B s = M s − M d . Money and bonds are assumed to be the two main asset categories that determine total wealth. Alternative model, developed by J.M. Keynes, to understand interest rate movements is the liquidity preference framework. The Market For Money: The Liquidity Preference Framework Asset Demand ...
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