Working Paper: NBER ID: w7060
Authors: Fernando Alvarez; Andrew Atkeson; Patrick J. Kehoe
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.
Keywords: No keywords provided
JEL Codes: E43; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Money injections (E51) | Decrease in nominal interest rates (E43) |
| Money injections (E51) | Changes in consumption patterns of traders (F61) |
| Changes in consumption patterns of traders (F61) | Decrease in marginal utility (D11) |
| Decrease in marginal utility (D11) | Decrease in real interest rates (E43) |
| Money injections (E51) | Lasting liquidity effect on interest rates (E43) |