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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

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File URL: http://repec.org/sed2006/up.6729.1139612421.pdf
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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 287.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:287

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Keywords: Money; Segmented Markets; Credit; Central Banking;

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  1. Julio J. Rotemberg, 1982. "A Monetary Equilibrium Model with Transactions Costs," NBER Working Papers 0978, National Bureau of Economic Research, Inc.
  2. 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.
  3. Ricardo Lagos & Randall Wright, 2004. "A unified framework for monetary theory and policy analysis," Staff Report 346, Federal Reserve Bank of Minneapolis.
  4. Julia K. Thomas & Aubhik Khan, 2005. "Inflation and Interest Rates with Endogenous Market Segmentation," 2005 Meeting Papers 170, Society for Economic Dynamics.
  5. Alvarez, Fernando & Atkeson, Andrew, 1997. "Money and exchange rates in the Grossman-Weiss-Rotemberg model," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 619-640, December.
  6. Freeman, Scott, 1996. "The Payments System, Liquidity, and Rediscounting," American Economic Review, American Economic Association, vol. 86(5), pages 1126-38, December.
  7. Fernando Alvarez & Andrew Atkeson & Patrick J. Kehoe, 2002. "Money, Interest Rates, and Exchange Rates with Endogenously Segmented Markets," Journal of Political Economy, University of Chicago Press, vol. 110(1), pages 73-112, February.
  8. Williamson, Stephen D., 2008. "Monetary policy and distribution," Journal of Monetary Economics, Elsevier, vol. 55(6), pages 1038-1053, September.
  9. Ed Nosal & Guillaume Rocheteau, 2006. "The economics of payments," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Feb.
  10. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
  11. Fernando Alvarez & Robert E. Lucas & Warren E. Weber, 2001. "Interest Rates and Inflation," American Economic Review, American Economic Association, vol. 91(2), pages 219-225, May.
  12. Neil Wallace, 1983. "A legal restrictions theory of the demand for "money" and the role of monetary policy," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win.
  13. Allen Head & Shouyong Shi, 2000. "A Fundamental Theory of Exchange Rates and Direct Currency Trades," Working Papers 993, Queen's University, Department of Economics.
  14. Jonathan Chiu, 2005. "Endogenously Segmented Asset Market in an Inventory Theoretic Model of Money Demand," 2005 Meeting Papers 108, Society for Economic Dynamics.
  15. Temzelides, Ted & Williamson, Stephen D., 2001. "Payments Systems Design in Deterministic and Private Information Environments," Journal of Economic Theory, Elsevier, vol. 99(1-2), pages 297-326, July.
  16. Shouyong Shi, 1997. "A Divisible Search Model of Fiat Money," Econometrica, Econometric Society, vol. 65(1), pages 75-102, January.
  17. Stephen D. Williamson, 2006. "Search, Limited Participation, And Monetary Policy ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 107-128, 02.
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Cited by:
  1. Jonathan Chiu & Alexandra Lai, 2007. "Modelling Payments Systems: A Review of the Literature," Working Papers 07-28, Bank of Canada.
  2. Mahmoudi, Babak, 2013. "Open-Market Operations, Asset Distributions, and Endogenous Market Segmentation," MPRA Paper 50089, University Library of Munich, Germany.
  3. 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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