ADVERSE SELECTION, SEGMENTED MARKETS, AND THE ROLE OF MONETARY POLICY

Daniel Sanches and Stephen Williamson

Macroeconomic Dynamics, 2011, vol. 15, issue S2, 269-292

Abstract: A model is constructed in which trading partners are asymmetrically informed about future trading opportunities and spatial and informational frictions limit arbitrage between markets. These frictions create inefficiency relative to a full-information equilibrium, and the extent of this inefficiency is affected by monetary policy. A Friedman rule is optimal under a wide range of circumstances, including ones where segmented markets limit the extent of monetary policy intervention.

Date: 2011
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Working Paper: Adverse Selection, Segmented Markets, and the Role of Monetary Policy (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:15:y:2011:i:s2:p:269-292_00

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