Tobin's imperfect substitution in optimizing general equilibrium
AbstractIn this paper, we present a dynamic optimizing model that allows explicitly for imperfect substitutability between di erent financial assets. This is specified in a manner which captures Tobin's (1969) view that an expansion of one asset's supply a ects both the yield on that asset and the spread or "risk premium" between returns on that asset and alternative assets. Our estimates of this model on U.S. data confirm that some of the observed deviations of long-term rates from the expectations theory of the term structure can be traced to movements in the relative stocks of financial assets. The richer aggregate demand and asset specifications imply that there exists an additional channel of monetary policy. Our results suggest that central bank operations exercise a modest influence on the relative prices of alternative financial securities, and so exert an extra e ect on long-term yields and aggregate demand separate from their e ect on the expected path of short-term rates.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0409.
Length: 38 pages
Date of creation: May 2004
Date of revision:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Kimura Takeshi & Small David H., 2006.
"Quantitative Monetary Easing and Risk in Financial Asset Markets,"
The B.E. Journal of Macroeconomics,
De Gruyter, vol. 6(1), pages 1-54, March.
- Takeshi Kimura & David Small, 2004. "Quantitative monetary easing and risk in financial asset markets," Finance and Economics Discussion Series 2004-57, Board of Governors of the Federal Reserve System (U.S.).
- Mariano Kulish, 2005.
"Should Monetary Policy use Long-term Rates?,"
Boston College Working Papers in Economics
635, Boston College Department of Economics.
- Peter N. Ireland, 2005.
"The monetary transmission mechanism,"
06-1, Federal Reserve Bank of Boston.
- Kenneth Kuttner, 2006. "Can Central Banks Target Bond Prices?," NBER Working Papers 12454, National Bureau of Economic Research, Inc.
- Mahmoudi, Babak, 2013. "Liquidity Effects of Central Banks' Asset Purchase Programs," MPRA Paper 49424, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mar�a Beiro. Electronic Dissemination of Information Unit. Research Department. Banco de Espa�a).
If references are entirely missing, you can add them using this form.