Sabri wrote:
Well! This make sense if my utility function depends only on asset returns. But my utility funtion may depend on other "consumption items" such as preventing a 25 percent contraction of the national economy.
Right. But, Sabri, we need to compare apples to apples. Other traders are regular profit maximizers. They don't have a particular beef with the other arguments in your objective function. They are not arguments in their functions. All else constant, the central bank cares about asset returns.
Correct! But when the time comes when I want to sell them, what will I do if my bonds are illiquid?
Right. That'd be the downside. Your initial question (if I remember correctly) was why TCB (ignoring legal mandate), instead of using its own money supply, doesn't trade TT's Eurobonds instead, to influence spreads and regulate local interest and exchange rates. Doesn't this answer your question? You'd be trading it off for higher reserve risk. I think I see your point better now. Hope my playing devil's advocate helped you clarify thoughts.
