Nernberg, Tyson (2025) Quantitative Easing in an Open Economy Model with Financial Intermediaries. Masters thesis, Concordia University.
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Abstract
This paper models quantitative easing in a small open economy with unrestricted bond markets in both countries to examine its impact on long-term interest rates and stimulating production growth. Bonds with short-term and long-term maturities, as well as domestic and foreign bonds, are modeled as imperfect substitutes reflecting investor preferences to hold a diversified portfolio. Following a quantitative easing shock that lowers the market supply of domestic long-term bonds, this bond segmentation causes long-term domestic bond yields
to decrease, leading to higher domestic production. This model includes banks that receive deposits from households and invest them in domestic and foreign bonds. Households earn a rate of return that is a weighted average of the returns earned by banks. In contrast to models
that include households holding bonds directly, models with banks allow traditional monetary policies of lowering short-term interest rates to continue to be impactful when short-term interest rates are zero. The results show that quantitative easing leads to lower long-term interest rates, increased domestic production, and higher inflation.
| Divisions: | Concordia University > Faculty of Arts and Science > Economics |
|---|---|
| Item Type: | Thesis (Masters) |
| Authors: | Nernberg, Tyson |
| Institution: | Concordia University |
| Degree Name: | M.A. |
| Program: | Economics |
| Date: | 13 July 2025 |
| Thesis Supervisor(s): | Gomme, Paul |
| Keywords: | Quantitative Easing, Open Economy |
| ID Code: | 995914 |
| Deposited By: | TYSON NERNBERG |
| Deposited On: | 04 Nov 2025 15:49 |
| Last Modified: | 04 Nov 2025 15:49 |
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