Efficacy of Monetary Policy and Limited Asset Market Participation

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Efficacy of Monetary Policy and Limited Asset Market Participation

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Giovanni Di Bartolomeo (Università di Roma La Sapienza)
Lorenza Rossi (Università di Roma Tor Vergata)

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Abstract

A common wisdom argues that limited asset market participation reduces the efficacy of monetary policy. This paper investigates this issue in the context of the New Keynesian dynamic stochastic general equilibrium models. Despite limited participation actually reduces effects of interest rate policies by reducing the effect on inter-temporal allocation of consumption, we find an opposite result. Monetary policy becomes more effective as long as the share of agents who cannot access to the financial market increases. The reason has a very Keynesian flavor.

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Paper provided by EconWPA in its series Macroeconomics with number 0508027.

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Length: 9 pages
Date of creation: 25 Aug 2005
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Handle: RePEc:wpa:wuwpma:0508027

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Find related papers by JEL classification:
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization

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Other versions:
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Other versions:
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Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Camelia Ioana Ucenic & Laura Bacali, 2008. "The Impact Of It Advance Of Smes¢ For The Romanian Economy," Working Papers 0804, University of Crete, Department of Economics. [Downloadable!]
Di Bartolomeo, Giovanni & Manzo, Marco, 2007. "Do tax distortions lead to more indeterminacy? A New Keynesian perspective," MPRA Paper 3549, University Library of Munich, Germany. [Downloadable!]
Other versions:
- Di Bartolomeo Giovanni & Manzo Marco, 2007. "Do tax distortions lead to more indeterminacy? A New Keynesian perspective," wp.comunite 0013, Department of Communication, University of Teramo. [Downloadable!]
Colciago, Andrea, 2006. "Rule of Thumb Consumers Meet Sticky Wages," MPRA Paper 3275, University Library of Munich, Germany, revised 27 Apr 2007. [Downloadable!]

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