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Liquidity Effects and Market Frictions

  • Hendry, Scott
  • Zhang, Guang-Jia

The goal of this paper is to tackle two problems in standard limited-par- ticipation models: (1) an interest rate liquidity effect that is not as persist- ent as in the data; and (2) nominal variables that are unrealistically volatile. To address these problems, we introduce nominal wage and price rigidities, as well as portfolio adjustment costs and monopolistically com- petitive firms, to better understand how each of these costs affects the model economy.

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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 23 (2001)
Issue (Month): 2 (April)
Pages: 153-176

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Handle: RePEc:eee:jmacro:v:23:y:2001:i:2:p:153-176
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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  8. Chari, V V & Christiano, Lawrence J & Eichenbaum, Martin, 1995. "Inside Money, Outside Money, and Short-Term Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1354-86, November.
  9. Hendry, Scott & Zhang, Guang-Jia, 2001. "Liquidity Effects and Market Frictions," Journal of Macroeconomics, Elsevier, vol. 23(2), pages 153-176, April.
  10. Marvin Goodfriend & Robert G. King, 1998. "The new neoclassical synthesis and the role of monetary policy," Working Paper 98-05, Federal Reserve Bank of Richmond.
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  17. Michael Dotsey & Peter N. Ireland, 1993. "Liquidity effects and transactions technologies," Working Paper 93-01, Federal Reserve Bank of Richmond.
  18. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1996. "Sticky Price Models of the Business Cycle: Can the Contract Multiplier Solve the Persistence Problem?," NBER Working Papers 5809, National Bureau of Economic Research, Inc.
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  20. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
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