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The Distribution of Liquidity in a Monetary Union with Different Portfolio Rigidities

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  • Nuno Alves
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    Abstract

    This paper analyses the monetary transmission mechanism in a monetary union with a segmented financial market. Differences in the households' information sets imply that a money supply shock yields permanently heterogeneous allocations across households. The distribution of liquidity is fundamental to this equilibrium. This distribution is also important to understand the response of the macroeconomic variables to a technology shock. In this case, a money supply rule yields heterogenous allocations between households, while an interest rate peg undoes the portfolio friction, yielding the same allocation across agents.

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    File URL: http://www.bportugal.pt/en-US/BdP%20Publications%20Research/WP200306.pdf
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    Bibliographic Info

    Paper provided by Banco de Portugal, Economics and Research Department in its series Working Papers with number w200306.

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    Date of creation: 2003
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    Handle: RePEc:ptu:wpaper:w200306

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    1. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity effects and the monetary transmission mechanism," Staff Report 150, Federal Reserve Bank of Minneapolis.
    2. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Modeling Money," NBER Working Papers 6371, National Bureau of Economic Research, Inc.
    3. Thomas F. Cooley & Vincenzo Quadrini, 2001. "The costs of losing monetary independence: the case of Mexico," Proceedings, Federal Reserve Bank of Cleveland, pages 370-403.
    4. Giovannetti, Giorgia & Marimon, Ramon, 1998. "An EMU with Different Transmission Mechanisms," CEPR Discussion Papers 2016, C.E.P.R. Discussion Papers.
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    7. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," NBER Working Papers 7147, National Bureau of Economic Research, Inc.
    8. Fuerst, Timothy S., 1992. "Liquidity, loanable funds, and real activity," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 3-24, February.
    9. Charles T. Carlstrom & Timothy S. Fuerst, 2001. "Timing and real indeterminacy in monetary models," Working Paper 9910R, Federal Reserve Bank of Cleveland.
    10. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1997. "Sticky price and limited participation models of money: A comparison," European Economic Review, Elsevier, vol. 41(6), pages 1201-1249, June.
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    13. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
    14. Charles T. Carlstrom & Timothy S. Fuerst, 1995. "Interest rate rules vs. money growth rules: a welfare comparison in a cash-in-advance economy," Working Paper 9504, Federal Reserve Bank of Cleveland.
    15. Benigno, Pierpaolo, 2004. "Optimal monetary policy in a currency area," Journal of International Economics, Elsevier, vol. 63(2), pages 293-320, July.
    16. Charles T. Carlstrom & Timothy S. Fuerst, 2001. "Real indeterminacy in monetary models with nominal interest rate distortions: the problem with inflation targets," Working Paper 9818R, Federal Reserve Bank of Cleveland.
    17. Fernando Alvarez & Andrew Atkeson & Chris Edmond, 2003. "On the Sluggish Response of Prices to Money in an Inventory-Theoretic Model of Money Demand," NBER Working Papers 10016, National Bureau of Economic Research, Inc.
    18. Grossman, Sanford & Weiss, Laurence, 1983. "A Transactions-Based Model of the Monetary Transmission Mechanism," American Economic Review, American Economic Association, vol. 73(5), pages 871-80, December.
    19. Maurice Obstfeld & Kenneth Rogoff, 1998. "Risk and Exchange Rates," NBER Working Papers 6694, National Bureau of Economic Research, Inc.
    20. Cooley, Thomas F. & Quadrini, Vincenzo, 1999. "A neoclassical model of the Phillips curve relation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 165-193, October.
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