A Segmented Markets Model of Inflation
AbstractModels of inflation usually have monetary policy impacting the economy through either an interest rate or a monetary/credit quantity channel but not through both. We argue that policy is transmitted via two distinct types of agents – those that are and that are not liquidity constrained. The implication is that both channels must be seen as complementary, joint indicators of inflation and must both be incorporated in models of inflation. We provide a formal representation of price level determination and behaviour in this segmented markets framework and evaluate it econometrically using US data. Length: 32 pages
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Bibliographic InfoPaper provided by Central Bank of Ireland in its series Research Technical Papers with number 17/RT/06.
Date of creation: Dec 2006
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