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Abstract
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.
Document type: | Working paper |
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Series Name: | Discussion Paper Series / University of Heidelberg, Department of Economics |
Volume: | 0537 |
Date Deposited: | 13 Dec 2012 11:24 |
Date: | December 2012 |
Number of Pages: | 32 |
Faculties / Institutes: | The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics |
DDC-classification: | 330 Economics |
Uncontrolled Keywords: | Segmented Asset Markets , Monetary Policy , Countercyclical Markups , Liquidity Effect , Expenditure Dispersion |
Series: | Discussion Paper Series / University of Heidelberg, Department of Economics |