Replication data for: Targeting Long Rates in a Model with Segmented Markets

Principal Investigator(s):  View help for Principal Investigator(s) Charles T. Carlstrom; Timothy S. Fuerst; Matthias Paustian

Version:  View help for Version V1

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  AEJM2016 10/12/2019 08:05:PM
LICENSE.txt text/plain 14.6 KB 10/12/2019 04:05:PM

Project Citation: 

Carlstrom, Charles T., Fuerst, Timothy S., and Paustian, Matthias. Replication data for: Targeting Long Rates in a Model with Segmented Markets. Nashville, TN: American Economic Association [publisher], 2017. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2019-10-12. https://doi.org/10.3886/E114123V1

Project Description

Summary:  View help for Summary This paper develops a model of segmented financial markets in which the net worth of financial institutions limits the degree of arbitrage across the term structure. The model is embedded into the canonical Dynamic New Keynesian (DNK) framework. We estimate the model using data on the term premium. Our principal results include the following. First, the estimated segmentation coefficient implies a nontrivial effect of central bank asset purchases on yields and real activity. Second, there are welfare gains to having the central bank respond to the term premium, e.g., including the term premium in the Taylor Rule. Third, a policy that directly targets the term premium sterilizes the real economy from shocks originating in the financial sector. A term-premium peg can have significant welfare effects.

Scope of Project

JEL Classification:  View help for JEL Classification
      E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
      E23 Macroeconomics: Production
      E31 Price Level; Inflation; Deflation
      E43 Interest Rates: Determination, Term Structure, and Effects
      E44 Financial Markets and the Macroeconomy
      E52 Monetary Policy
      E58 Central Banks and Their Policies


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V1 [2019-10-12]

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