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Heterogeneous Consumers, Segmented Asset Markets, and the Real Effects of Monetary Policy

Zeno Enders

No 6467, CESifo Working Paper Series from CESifo Group Munich

Abstract: This paper proposes a novel mechanism by which changes in the distribution of money holdings have real aggregate effects. Specifically, I develop a flexible-price model of segmented asset markets in which monetary policy influences the aggregate demand elasticity via heterogenous money holdings. Because varieties of consumption bundles are purchased sequentially, newly injected money disseminates slowly throughout the economy via secondround effects. The model predicts a short-term inflation-output trade-off, a liquidity effect, countercyclical markups, and procyclical wages after monetary shocks. Among other correlations of financial variables, it also reproduces the empirical, negative relationship between changes in the money supply and markups.

Keywords: segmented asset markets; monetary policy; countercyclical markups; liquidity effect; heterogenous money holdings (search for similar items in EconPapers)
JEL-codes: E31 E32 E51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
Date: 2017
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