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Open Market Operations

Sylvia Xiao, Randall Wright and Guillaume Rocheteau
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Sylvia Xiao: University of Wisconsin-Madison
Randall Wright: University of Wisconsin
Guillaume Rocheteau: University of California, Irvine

No 345, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: We develop models with liquid government bonds and currency to analyze monetary policy, especially open market operations. Various specifications are considered for market structure, and for the liquidity — i.e., acceptability or pledgeability — of money and bonds in their roles as media of exchange or collateral. Theory delivers sharp policy predictions. It can also generate negative nominal yields, endogenous market segmentation, liquidity traps, and nominal prices or interest rates that appear sluggish. Differences in acceptability or pledgeability are not simply assumed; they are endogenized using information frictions. This naturally generates multiple equilibria, but conditional on selection, we still deliver sharp predictions.

New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
Date: 2017
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