Monetary Policy, the Term Structure of Interest Rates and Imperfect Asset Substitutability

Student: Gordeev Vladislav

Supervisor: Oxana A. Malakhovskaya

Educational Programme: Master

Year of Graduation: 2014

<p>The paper explores the following research question: how the preferences of households for maturity structure of their financial portfolios affect the efficiency of monetarny shocks. Assets in the portfolio are assumed to be imperfect substitutes. Several types of monetary shocks are considered: a shock of short-term interest rates and purchases of long-term bonds with different financing options. The paper shows that portfolio preferences of households do affect the strength of the impact of shocks on the economy. The paper indicates direction of this effect and explains in detail the mechanisms that cause this phenomenon. In addition,   changes in the impact of shocks on the economy subject different preferences for portfolio maturity structure are decomposed into parts to to figure out the main driver. The dynamics of this driveк is then analyzed.</p>

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