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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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    More about this item

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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