Government Financing and Interest Rates in a Three Assets Sidrauski-based Model

In this paper we formulate a Sidrauski-based model with three assets in which we introduce public bonds into the utility function of agents, with the purpose of analyzing some related questions with regards to the consequences of the financial activity of the government and the determination of the interest rates. The results obtained permit us to conclude that, within this framework: 1.-financial decisions of government will not influence the steady state levels of consumption and capital, and 2.-the inflation rate affects the real interest rate on bonds negatively.