Slow Money Dissemination

Zeno Enders

No ECO2006/25, Economics Working Papers from European University Institute

Abstract: A model of limited participation in the asset market is developed, in which varieties of consumption bundles are purchased sequentially. By this, heterogeneity in money holdings and in the effective elasticity of substitution of consumers arises, which affects optimal markups chosen by oligopolistic firms. The model generates a short-term inflation-output trade off, although all firms can set their optimal price each period and no informational problems exist. The responses are persistent even after a one-time monetary shock due to an internal propagation mechanism that stems from the slow dissemination of newly injected money. Furthermore, a liquidity effect, countercyclical markups, procyclical profits and marginal costs after monetary shocks are obtained. The model is simple and tractable, such that analytical results for the linearized model can be derived.

Keywords: Limited Participation; Countercyclical Markups; Liquidity Effect Phillips Curve; Oligopolistic Competition (search for similar items in EconPapers)
JEL-codes: E31 E32 E51 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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