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

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  • 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: https://www.bportugal.pt/sites/default/files/anexos/papers/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
    Handle: RePEc:ptu:wpaper:w200306
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    Web page: https://www.bportugal.pt
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    16. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
    17. Cooley, Thomas F. & Quadrini, Vincenzo, 1999. "A neoclassical model of the Phillips curve relation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 165-193, October.
    18. Fernando Alvarez & Andrew Atkeson & Chris Edmond, 2003. "On the Sluggish Response of Prices to Money in an Inventory-Theoretic Model of Money Demand," NBER Working Papers 10016, National Bureau of Economic Research, Inc.
    19. Fuerst, Timothy S., 1992. "Liquidity, loanable funds, and real activity," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 3-24, February.
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