Heterogeneous consumers, segmented asset markets, and the effects of monetary policy

Zeno Enders

No 08/2010, Bonn Econ Discussion Papers from University of Bonn, Bonn Graduate School of Economics (BGSE)

Abstract: This paper examines the implications of segmented assets markets for the real and nominal effects of monetary policy. I develop a model, in which varieties of consumption bundles are purchased sequentially. Newly injected money thus disseminates slowly through the economy via second-round effects and induces a non-degenerate, long-lasting heterogeneity in wealth. As a result, the effective elasticity of substitution differs across households, affecting optimal markups chosen by producers. In line with empirical evidence, the model predicts a short-term inflation-output trade-off, a liquidity effect, countercyclical markups, and procyclical profits and wages after monetary shocks.

Keywords: Segmented Asset Markets; Monetary Policy; Countercyclical Markups; Liquidity Effect; Limited Participation (search for similar items in EconPapers)
JEL-codes: E31 E32 E51 (search for similar items in EconPapers)
Date: 2010
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Related works:
Working Paper: Heterogeneous consumers, segmented asset markets, and the effects of monetary policy (2012)
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