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Transactions, Credit, and Central Banking in a Model of Segmented Markets

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  • Stephen D. Williamson

    (Department of Economics University of Iowa)

Abstract

A segmented markets model is constructed in which transactions are conducted using credit and currency. Goods market segmentation plays an important role, in addition to the role played by conventional segmentation of asset markets. An important novelty of the paper is to show how the diffusion of a money injection by the central bank depends not only on the interaction of agents in exchanging money for goods, but on the arrangements for clearing and settlement of credit instruments. The model permits open market operations, daylight overdrafts, reserve-holding, and overnight lending and borrowing, allowing us to consider a rich array of central banking arrangements and their implications

Suggested Citation

  • Stephen D. Williamson, 2006. "Transactions, Credit, and Central Banking in a Model of Segmented Markets," 2006 Meeting Papers 287, Society for Economic Dynamics.
    • Handle: RePEc:red:sed006:287
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    References listed on IDEAS

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    19. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
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    Citations

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    Cited by:

    1. Waknis, Parag, 2017. "A Segmented Markets Model to Teach Analysis of Monetary Policy Shocks in Developing Economies," MPRA Paper 78011, University Library of Munich, Germany.
    2. Simon Bilo, 2018. "Lucas and Hume on Monetary Non-neutrality: A Tension between the Logic and the Technique of Economics," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 44(3), pages 364-380, June.
    3. Choi, Hyung Sun, 2014. "Money, credit, risk of loss, and limited participation," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 9-23.
    4. Zeno Enders, 2020. "Heterogeneous Consumers, Segmented Asset Markets and the Real Effects of Monetary Policy," The Economic Journal, Royal Economic Society, vol. 130(628), pages 1031-1056.
    5. Jonathan Chiu & Alexandra Lai, 2007. "Modelling Payments Systems: A Review of the Literature," Staff Working Papers 07-28, Bank of Canada.
    6. Choi, Hyung Sun, 2023. "Money, payments systems, limited participation, and central banking," The North American Journal of Economics and Finance, Elsevier, vol. 64(C).
    7. Waknis, Parag, 2017. "Demonetisation: Some Theoretical Perspectives," MPRA Paper 76391, University Library of Munich, Germany.
    8. Choi, Hyung Sun & Lee, Manjong, 2016. "Credit, banking, liquidity shortfall, and monetary policy," International Review of Economics & Finance, Elsevier, vol. 46(C), pages 87-99.
    9. Adão, Bernardino & Silva, André C., 2020. "The effect of firm cash holdings on monetary policy," European Economic Review, Elsevier, vol. 128(C).
    10. Hyung Sun Choi & Manjong Lee, 2016. "Multiple Means of Payment, Excess Reserves, and Monetary Policy," Korean Economic Review, Korean Economic Association, vol. 32, pages 5-21.
    11. Choi, Hyung Sun, 2015. "Monetary policy, endogenous transactions, and financial market segmentation," Journal of Macroeconomics, Elsevier, vol. 44(C), pages 234-251.
    12. Waknis, Parag, 2019. "Demonetization as a Payments System Shock under Goods and Financial Market Segmentation: A Short Run Analysis," MPRA Paper 94171, University Library of Munich, Germany.
    13. Mahmoudi, Babak, 2013. "Open-Market Operations, Asset Distributions, and Endogenous Market Segmentation," MPRA Paper 50089, University Library of Munich, Germany.
    14. Li, Yan & Carroll, Wayne, 2011. "The payment mechanisms and liquidity effects," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 656-667.

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    More about this item

    Keywords

    Money; Segmented Markets; Credit; Central Banking;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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