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Monetary Policy, Segmentation, and the Term Structure

Author

Listed:
  • Rohan Kekre
  • Moritz Lenel
  • Federico Mainardi

Abstract

We develop a segmented markets model which rationalizes the effects of monetary policy on the term structure of interest rates. When arbitrageurs’ portfolio features positive duration, an unexpected rise in the short rate lowers their wealth and raises term premia. A calibration to the U.S. economy accounts for the transmission of monetary shocks to long rates. We discuss the additional implications of our framework for state-dependence in policy transmission, the volatility and slope of the yield curve, and trends in term premia accompanying trends in the natural rate.

Suggested Citation

  • Rohan Kekre & Moritz Lenel & Federico Mainardi, 2024. "Monetary Policy, Segmentation, and the Term Structure," NBER Working Papers 32324, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32324
    Note: AP EFG ME
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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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