Monetary Policy, Segmentation, and the Term Structure

48 Pages Posted: 15 Apr 2024

See all articles by Rohan Kekre

Rohan Kekre

University of Chicago

Moritz Lenel

Princeton University - Bendheim Center for Finance

Federico Mainardi

University of Chicago - Booth School of Business; University of Chicago - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 2024

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.

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Suggested Citation

Kekre, Rohan and Lenel, Moritz and Mainardi, Federico, Monetary Policy, Segmentation, and the Term Structure (April 2024). NBER Working Paper No. w32324, Available at SSRN: https://ssrn.com/abstract=4794373

Rohan Kekre (Contact Author)

University of Chicago ( email )

1101 East 58th Street
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Moritz Lenel

Princeton University - Bendheim Center for Finance ( email )

26 Prospect Avenue
Princeton, NJ 08540
United States

Federico Mainardi

University of Chicago - Booth School of Business ( email )

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Chicago, IL 60637
United States
8728182099 (Phone)

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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