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Open Market Operations

Author

Listed:
  • Sylvia Xiao

    (University of Wisconsin-Madison)

  • Randall Wright

    (University of Wisconsin)

  • Guillaume Rocheteau

    (University of California, Irvine)

Abstract

We develop models with liquid government bonds and currency to analyze monetary policy, especially open market operations. Various specifications are considered for market structure, and for the liquidity — i.e., acceptability or pledgeability — of money and bonds in their roles as media of exchange or collateral. Theory delivers sharp policy predictions. It can also generate negative nominal yields, endogenous market segmentation, liquidity traps, and nominal prices or interest rates that appear sluggish. Differences in acceptability or pledgeability are not simply assumed; they are endogenized using information frictions. This naturally generates multiple equilibria, but conditional on selection, we still deliver sharp predictions.

Suggested Citation

  • Sylvia Xiao & Randall Wright & Guillaume Rocheteau, 2017. "Open Market Operations," 2017 Meeting Papers 345, Society for Economic Dynamics.
    • Handle: RePEc:red:sed017:345
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    References listed on IDEAS

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    Cited by:

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    2. Wright, Randall & Xiao, Sylvia Xiaolin & Zhu, Yu, 2018. "Frictional capital reallocation I: Ex ante heterogeneity," Journal of Economic Dynamics and Control, Elsevier, vol. 89(C), pages 100-116.
    3. Seungduck Lee & Kuk Mo Jung, 2019. "A Liquidity-Based Resolution of the Uncovered Interest Parity Puzzle," Working Papers 1902, Research Institute for Market Economy, Sogang University.
    4. Seungduck Lee & Kuk Mo Jung, 2020. "A Liquidity‐Based Resolution of the Uncovered Interest Parity Puzzle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(6), pages 1397-1433, September.

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