Inflation and Interest Rates With Endogenous Market Segmentation

Ination and Interest Rates with Endogenous Market Segmentation

We examine a monetary economy wherein endogenous asset market segmentation permits the extent of household participation in open market operations to smoothly vary with changes in aggregate conditions. While we impose no stickiness at the microeconomic level in either prices or portfolio adjustment, we …nd that our ‡exible asset market segmentation can deliver gradual adjustment in the aggregat...

Endogenous asset market segmentation : interest rate dynamics

Revisiting the Tale of Two Interest Rates with Endogenous Asset Market Segmentation

We develop a monetary model that is unique in its ability to deliver a negative correlation between aggregate consumption growth and short-term real interest rates consistent with U.S. data. The essential ingredient to this success is endogenous asset market segmentation permitting the extent of household participation in asset markets to vary smoothly with changes in aggregate conditions. Hous...

Interest Rates, ECB Communication and Inflation Expectations

Guiding and anchoring inflation expectations of the public are key tasks of modern central banks. In this paper we investigate how the European Central Bank (ECB) influences inflation expectations of professional forecasters. We argue that it is a good sign that interest rate changes as such are not significant in explaining inflation expectations: The ECB has been able to prepare professional ...

Endogenous asset market segmentation

Agents and endowments. There is a continuum of ex ante identical households, a large number of perfectly competitive financial intermediaries, and a government. As in a typical cash-inadvance economy each household splits into a worker and a shopper each period. Each period each household receives an idiosyncratic endowment y ∈ [0,∞) that is IID in the population and IID over time with density ...