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Adverse Selection, Segmented Markets, and the Role of Monetary Policy

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  • Williamson, Stephen
  • Sanches, Daniel

Abstract

A model is constructed in which trading partners are asymmetrically informed about future trading opportunities and where spatial and informational frictions limit arbitrage between markets. These frictions create an inefficiency relative to a full information equilibrium, and the extent of this inefficiency is affected by monetary policy. A Friedman rule is optimal under a wide range of circumstances, including ones where segmented markets limit the extent of monetary policy intervention.

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File URL: http://mpra.ub.uni-muenchen.de/20691/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20691.

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Date of creation: 2009
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Handle: RePEc:pra:mprapa:20691

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Keywords: Adverse Selection; Monetary Policy; Search;

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References

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  1. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  2. Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 463-484, June.
  3. Stephen D. Williamson, 2005. "Monetary Policy and Distribution," 2005 Meeting Papers 379, Society for Economic Dynamics.
  4. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
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Cited by:
  1. Stephen Williamson & Randall Wright, 2010. "New monetarist economics: methods," Review, Federal Reserve Bank of St. Louis, issue May, pages 265-302.
  2. Williamson, Stephen D. & Wright, Randall, 2010. "New Monetarist Economics: Models," MPRA Paper 21030, University Library of Munich, Germany.

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