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Adverse Selection, Segmented Markets, and the Role of Monetary Policy

  • Williamson, Stephen
  • Sanches, Daniel

A model is constructed in which trading partners are asymmetrically informed about future trading opportunities and where spatial and informational frictions limit arbitrage between markets. These frictions create an 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.

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File URL: http://mpra.ub.uni-muenchen.de/20691/1/MPRA_paper_20691.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20691.

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Date of creation: 2009
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Handle: RePEc:pra:mprapa:20691
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  1. Ricardo Lagos & Randall Wright, 2004. "A unified framework for monetary theory and policy analysis," Staff Report 346, Federal Reserve Bank of Minneapolis.
  2. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  3. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
  4. Stephen D. Williamson, 2005. "Monetary Policy and Distribution," 2005 Meeting Papers 379, Society for Economic Dynamics.
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