Efficacy of Monetary Policy and Limited Asset Market Participation
AbstractA 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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Bibliographic InfoPaper provided by EconWPA in its series Macroeconomics with number 0508027.
Length: 9 pages
Date of creation: 25 Aug 2005
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Consumers’ heterogeneity; efficacy of monetary policy; rule- of-thumb.;
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; Treasury Policy
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