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The Distribution of Liquidity in a Monetary Union with Different Portfolio Rigidities

  • Nuno Alves
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    This paper analyses the monetary transmission mechanism in a monetary union with a segmented financial market. Differences in the households' information sets imply that a money supply shock yields permanently heterogeneous allocations across households. The distribution of liquidity is fundamental to this equilibrium. This distribution is also important to understand the response of the macroeconomic variables to a technology shock. In this case, a money supply rule yields heterogenous allocations between households, while an interest rate peg undoes the portfolio friction, yielding the same allocation across agents.

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    File URL: http://www.bportugal.pt/en-US/BdP%20Publications%20Research/WP200306.pdf
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    Paper provided by Banco de Portugal, Economics and Research Department in its series Working Papers with number w200306.

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    Date of creation: 2003
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    Handle: RePEc:ptu:wpaper:w200306
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    1. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
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    18. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1997. "Monetary Shocks and Real Exchange Rates in Sticky Price Models of International Business Cycles," NBER Working Papers 5876, National Bureau of Economic Research, Inc.
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