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Heterogeneous consumers, segmented asset markets,and the effects of monetary policy

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  • Zeno Enders

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Abstract

This paper examines the implications of segmented assets markets for the 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 non-degenerate, long-lasting heterogeneity in wealth. As a result, the effective elasticity of substitution differs across households, affecting optimal markups chosen by producers. In line with empirical evidence, the model predicts a short-term inflation-output trade-off, a liquidity effect, countercyclical markups, and procyclical profits and wages after monetary shocks.

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File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse08_2010.pdf
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Bibliographic Info

Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse08_2010.

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Length: 24
Date of creation: Apr 2010
Date of revision:
Handle: RePEc:bon:bonedp:bgse08_2010

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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de

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Keywords: Segmented Asset Markets; Monetary Policy; CountercyclicalMarkups Liquidity Effect; Limited Participation;

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