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    Liquidity, term spreads and monetary policy

    Aksoy, Yunus and Basso, H. (2014) Liquidity, term spreads and monetary policy. The Economic Journal 124 (581), pp. 1234-1278. ISSN 0013-0133.

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    Abstract

    We propose a model with segmented markets that delivers endogenous variations in term spreads driven by banks’ portfolio decisions while facing maturity risk. Future profitability influences the term premium banks require to carry this risk. When expected profitability is relatively high (low) spreads are low (high). Spread fluctuations feed back into the macroeconomy through investment decisions. Econometric evidence corroborates this link between expected financial profitability and yield spreads. Finally, we analyse unconventional monetary policy by allowing banks to sell assets to the central bank. These interventions exploit a new channel of policy transmission through banks’ portfolio choice affecting the yield curve.

    Metadata

    Item Type: Article
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Research Centre: Applied Macroeconomics, Birkbeck Centre for
    Depositing User: Yunus Aksoy
    Date Deposited: 17 Sep 2013 10:01
    Last Modified: 26 Jul 2019 18:49
    URI: http://eprints.bbk.ac.uk/id/eprint/8152

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