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A Segmented Markets Model to Teach Analysis of Monetary Policy Shocks in Developing Economies

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  • Waknis, Parag

Abstract

The standard undergraduate textbook models in macroeconomics like the IS-LM/AD-AS model are not disaggregated enough to understand the effects of monetary policy shocks in developing economies typically characterized by substantial informality, and goods and financial markets segmentation. In this paper, I present a version of a segmented markets model based on Williamson (2009, 2011) that could be used as an effective alternative. I demonstrate the use of the framework by analyzing the effects of demonetization- a substantial reduction in the availability of outside money- in a developing country setting.

Suggested Citation

  • Waknis, Parag, 2017. "A Segmented Markets Model to Teach Analysis of Monetary Policy Shocks in Developing Economies," MPRA Paper 78011, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:78011
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    References listed on IDEAS

    as
    1. Stephen D. Williamson, 2009. "Transactions, Credit, and Central Banking in a Model of Segmented Markets," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(2), pages 344-362, April.
    2. Castillo, Paul & Montoro, Carlos, 2010. "Monetary Policy in the presence of Informal Labour Markets," Working Papers 2010-009, Banco Central de Reserva del Perú.
    3. Rafael La Porta & Andrei Shleifer, 2014. "Informality and Development," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 109-126, Summer.
    4. Mark Aguiar & Gita Gopinath, 2007. "Emerging Market Business Cycles: The Cycle Is the Trend," Journal of Political Economy, University of Chicago Press, vol. 115, pages 69-102.
    5. Allen, Franklin & Qian, Jun & Qian, Meijun, 2005. "Law, finance, and economic growth in China," Journal of Financial Economics, Elsevier, vol. 77(1), pages 57-116, July.
    6. Rafael La Porta & Andrei Shleifer, 2008. "The Unofficial Economy and Economic Development," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 275-363.
    7. repec:hrv:faseco:33078210 is not listed on IDEAS
    8. Allen, Franklin & Chakrabarti, Rajesh & De, Sankar & Qian, Jun “QJ” & Qian, Meijun, 2012. "Financing firms in India," Journal of Financial Intermediation, Elsevier, vol. 21(3), pages 409-445.
    9. Roberto Duncan, 2015. "Simple Models to Understand and Teach Business Cycle Macroeconomics for Emerging Market and Developing Economies," Working Papers 2015-49, Peruvian Economic Association.
    10. Fuerst, Timothy S., 1992. "Liquidity, loanable funds, and real activity," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 3-24, February.
    11. Rotemberg, Julio J, 1984. "A Monetary Equilibrium Model with Transactions Costs," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 40-58, February.
    12. Friedrich Schneider & Dominik Enste, 2000. "Shadow Economies Around the World; Size, Causes, and Consequences," IMF Working Papers 00/26, International Monetary Fund.
    13. 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.
    14. Roberto Duncan, 2015. "A Simple Model to Teach Business Cycle Macroeconomics for Emerging Market and Developing Economies," The Journal of Economic Education, Taylor & Francis Journals, vol. 46(4), pages 394-402, October.
    15. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
    16. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
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    More about this item

    Keywords

    segmented markets; developing countries; demonetization; economic education; informal markets; undergraduate macroeconomics.;

    JEL classification:

    • A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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