This paper examines how segmented asset markets can generate real and nominal effects of monetary policy. I develop a model, in which varieties of consumption bundles are purchased sequentially. Newly injected money thus disseminates slowly through the economy via second-round effects and induces a longer-lasting, non-degenerate wealth distribution. As a result, the demand elasticity differs across consumers, affecting optimal markups chosen by producers. The model predicts a short-term inflation-output trade-off, a liquidity effect, countercyclical markups, and procyclical wages and expenditure dispersion across consumers after monetary shocks. Including a modest degree of real or nominal wage rigidity yields responses that are also quantitatively in line with empirical evidence.
|Item Type:||Working paper|
|Series Name:||Discussion Paper Series / University of Heidelberg, Department of Economics|
|Date Deposited:||13 Dec 2012 11:24|
|Number of Pages:||32|
|Faculties / Institutes:||The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics|
|Uncontrolled Keywords:||Segmented Asset Markets , Monetary Policy , Countercyclical Markups , Liquidity Effect , Expenditure Dispersion|
|Schriftenreihe ID:||Discussion Paper Series / University of Heidelberg, Department of Economics|