Monetary Policy, Segmentation, and the Term Structure

Rohan Kekre, Moritz Lenel and Federico Mainardi

No 32324, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a segmented markets model which rationalizes the effects of monetary policy on the term structure of interest rates. When arbitrageurs’ portfolio features positive duration, an unexpected rise in the short rate lowers their wealth and raises term premia. A calibration to the U.S. economy accounts for the transmission of monetary shocks to long rates. We discuss the additional implications of our framework for state-dependence in policy transmission, the volatility and slope of the yield curve, and trends in term premia accompanying trends in the natural rate.

JEL-codes: E44 E63 G12 (search for similar items in EconPapers)
Date: 2024-04
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fmk, nep-ifn and nep-mon
Note: AP EFG ME
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Working Paper: Monetary Policy, Segmentation, and the Term Structure (2023)
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