Skip to main content

A Model of Circulating Private Debt

Staff Report 83 | Published August 1, 1982

Download PDF


Robert Townsend Visiting Scholar, Institute
A Model of Circulating Private Debt


We study the possible specialness of circulating as opposed to noncirculating private securities using models whose equilibria imply the existence of both. The models are pure exchange setups with spatial separation and with the potential for a variety of intertemporal trades. We find a sense in which unregulated circulating private securities are troublesome. It can happen that in order for an equilibrium to exist, the amounts of circulating debts issued at the same time in spatially and informationally separated markets have to satisfy restrictions not implied by individual maximization and market clearing in each market separately.