Adverse Selection, Segmented Markets, And The Role Of Monetary Policy
A model is constructed in which trading partners are asymmetrically informed about future trading opportunities and spatial and informational frictions limit arbitrage between markets. These frictions create inefficiency relative to a full-information equilibrium, and the extent of this inefficiency is affected by monetary policy. A Friedman rule is optimal under a wide range of circumstances, including ones where segmented markets limit the extent of monetary policy intervention.
Volume (Year): 15 (2011)
Issue (Month): S2 (September)
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