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

Zeno Enders

No 537, Working Papers from University of Heidelberg, Department of Economics

Abstract: This paper examines how segmented asset markets can generate 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 longer-lasting, non-degenerate wealth distribution. As a result, the demand elasticity differs across consumers, affecting optimal markups chosen by producers. The model predicts a short-term inflation-output trade-off, a liquidity effect, countercyclical markups, and procyclical wages and expenditure dispersion across consumers after monetary shocks. Including a modest degree of real or nominal wage rigidity yields responses that are also quantitatively in line with empirical evidence.

Keywords: Segmented Asset Markets; Monetary Policy; Countercyclical Markups; Liquidity Effect; Expenditure Dispersion (search for similar items in EconPapers)
Date: 2012-12-13
Note: This paper is part of http://archiv.ub.uni-heidelberg.de/volltextserver/view/schriftenreihen/sr-3.html
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Related works:
Working Paper: Heterogeneous consumers, segmented asset markets, and the effects of monetary policy (2010)
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