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: | School of Business, Economics & Informatics > Economics, Mathematics and Statistics |
| Research Centres and Institutes: | Applied Macroeconomics, Birkbeck Centre for |
| Depositing User: | Yunus Aksoy |
| Date Deposited: | 17 Sep 2013 10:01 |
| Last Modified: | 09 Jun 2021 20:45 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/8152 |
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