Heterogeneous Consumers, Segmented Asset Markets, and the Real Effects of Monetary Policy
CESifo, Munich, 2017
CESifo Working Paper No. 6467
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.
Monetary Policy and International Finance
Fiscal Policy, Macroeconomics and Growth