Alvarez, F;
Atkeson, A;
Kehoe, PJ;
(2002)
Money, interest rates, and exchange rates with endogenously segmented markets.
Journal of Political Economy
, 110
(1)
pp. 73-112.
10.1086/324389.
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Abstract
We analyze the effects of money injections on interest rates and exchange rates when agents must pay a Baumol‐Tobin‐style fixed cost to exchange bonds and money. Asset markets are endogenously segmented because this fixed cost leads agents to trade bonds and money infrequently. When the government injects money through an open market operation, only those agents that are currently trading absorb these injections. Through their impact on these agents’ consumption, these money injections affect real interest rates and real exchange rates. The model generates the observed negative relation between expected inflation and real interest rates as well as persistent liquidity effects in interest rates and volatile and persistent exchange rates.
| Type: | Article |
|---|---|
| Title: | Money, interest rates, and exchange rates with endogenously segmented markets |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1086/324389 |
| Publisher version: | https://doi.org/10.1086/324389 |
| Language: | English |
| Additional information: | This version is the version of record. For information on re-use, please refer to the publisher’s terms and conditions. |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL SLASH UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10054416 |
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