Money and interest rates with endogeneously segmented markets
Andrew Atkeson and
Patrick Kehoe ()
No 260, Staff Report from Federal Reserve Bank of Minneapolis
This paper analyses the effects of open market operations on interest rates in a model in which agents must pay a fixed cost to exchange assets and cash. Asset markets are endogenously segmented in that some agents choose to pay the fixed cost and some do not. When the fixed cost is zero, the model reduces to the standard one in which persistent money injections increase nominal interest rates, flatten the yield curve, and lead to a downward-sloping yield curve on average. In contrast, if markets are sufficiently segmented, then persistent money injections decrease interest rates, steepen or even twist the yield curve, and lead to an upward-sloping yield curve on average.
Keywords: Money; Interest rates (search for similar items in EconPapers)
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Working Paper: Money and Interest Rates with Endogeneously Segmented Markets (1999)
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