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Slow Money Dissemination

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  • Zeno Enders

Abstract

A model of limited participation in the asset market is developed, in which varieties of consumption bundles are purchased sequentially. By this, heterogeneity in money holdings and in the effective elasticity of substitution of consumers arises, which affects optimal markups chosen by oligopolistic firms. The model generates a short-term inflation-output trade off, although all firms can set their optimal price each period and no informational problems exist. The responses are persistent even after a one-time monetary shock due to an internal propagation mechanism that stems from the slow dissemination of newly injected money. Furthermore, a liquidity effect, countercyclical markups, procyclical profits and marginal costs after monetary shocks are obtained. The model is simple and tractable, such that analytical results for the linearized model can be derived.

Suggested Citation

  • Zeno Enders, 2006. "Slow Money Dissemination," Economics Working Papers ECO2006/25, European University Institute.
  • Handle: RePEc:eui:euiwps:eco2006/25
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    References listed on IDEAS

    as
    1. Christiano, Lawrence J & Eichenbaum, Martin & Evans, Charles, 1996. "The Effects of Monetary Policy Shocks: Evidence from the Flow of Funds," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 16-34, February.
    2. Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 463-484, June.
    3. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1997. "Sticky price and limited participation models of money: A comparison," European Economic Review, Elsevier, vol. 41(6), pages 1201-1249, June.
    4. Stephen D. Williamson, 2005. "Limited participation and the neutrality of money," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 1-20.
    5. Grossman, Sanford & Weiss, Laurence, 1983. "A Transactions-Based Model of the Monetary Transmission Mechanism," American Economic Review, American Economic Association, vol. 73(5), pages 871-880, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Limited Participation; Countercyclical Markups; Liquidity Effect Phillips Curve; Oligopolistic Competition;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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