Money and Interest Rates with Endogeneously Segmented Markets

Fernando Alvarez, Andrew Atkeson and Patrick Kehoe

No 7060, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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 interest rates, flatten the yield curve, and lead to a downward-sloping yield curve on average. In contrast sufficiently segmented, then persistent money injections decrease nominal interest rates, steepen or even twist the yield curve, and lead to an upward-sloping yield curve on average.

JEL-codes: E43 E52 (search for similar items in EconPapers)
Date: 1999-03
New Economics Papers: this item is included in nep-mon
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published as Alvarez, Fernanco, Andre Atkeson and Patrick J. Kehoe. "Money, Interest Rates, And Exchange Rates With Endogenously Segmented Markets," Journal of Political Economy, 2002, v110(1,Mar), 73-112.

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Working Paper: Money and interest rates with endogeneously segmented markets (1999)
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