Asymmetric liquidity shocks and optimal monetary policy

Eisei Ohtaki

Economics Bulletin, 2014, vol. 34, issue 2, 1068-1080

Abstract: This article develops an OLG model with random relocations of agents among more-than-two islands, wherein asymmetric liquidity shocks are observed. The model exhibits suboptimality of the Friedman rule. Furthermore, it is shown that there is no room for monetary policy to improve social welfare when the number of locations is extremely large. This article then shows that the discount window policy achieves an optimal allocation.

Keywords: Money; Friedman rule; Discount window policy; Spatial separation; Overlapping generations model. (search for similar items in EconPapers)
JEL-codes: E5 E6 (search for similar items in EconPapers)
Date: 2014-05-25
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Citations: View citations in EconPapers (1)

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