Liquidity, Term Spreads and Monetary Policy

Bibliographic Data

ID9719607
AuthorsYunus Aksoy (0000-0003-1012-8457, Birkbeck, University of London), Henrique S Basso (Bank of Spain)
Year2014
Volume124
Issue581
Pages1234-1278
Publication date2014-12-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueThe Economic Journal (JOURNAL)
Journal identifiersISSN: 0013-0133 • E-ISSN: 1468-0297
PublisherOxford University Press (OUP) (PUBLISHER)
DOI10.1111/ecoj.12087
OpenAlexW3124400287
LanguageEN
References cited43

We propose a model with segmented markets that delivers endogenous variations in term spreads driven by banks' portfolio decisions while facing maturity risk. Future profitability influences the term premium that banks require to carry this risk. When expected profitability is relatively high (low) spreads are low (high). Spread fluctuations feed back into the macroeconomy through investment decisions. Econometric evidence corroborates this link between expected financial profitability and yield spreads. Finally, we analyse unconventional monetary policy by allowing banks to sell assets to the central bank. These interventions exploit a new channel of policy transmission through banks' portfolio choice affecting the yield curve

Economics · Exploit · Financial economics · Interest rate · Investment (military · Market liquidity · Maturity (psychological · Monetary economics · Monetary policy · Portfolio · Profitability index · Term (time · Yield (engineering · Yield curve · Banking stability, regulation, efficiency · Economic theories and models · Finance · Monetary Policy and Economic Impact

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