Date: 2006
Type: Working Paper
Slow Money Dissemination
Working Paper, EUI ECO, 2006/25
ENDERS, Zeno, Slow Money Dissemination, EUI ECO, 2006/25 - https://hdl.handle.net/1814/6091
Retrieved from Cadmus, EUI Research Repository
A model of limited participation in the asset market is developed, in which varieties of
consumption bundles are purchased sequentially. By this, heterogeneity in money holdings and in
the effective elasticity of substitution of consumers arises, which affects optimal markups chosen
by oligopolistic firms. The model generates a short-term inflation-output trade off, although all
firms can set their optimal price each period and no informational problems exist. The responses
are persistent even after a one-time monetary shock due to an internal propagation mechanism
that stems from the slow dissemination of newly injected money. Furthermore, a liquidity
effect, countercyclical markups, procyclical profits and marginal costs after monetary shocks are
obtained. The model is simple and tractable, such that analytical results for the linearized model
can be derived.
Cadmus permanent link: https://hdl.handle.net/1814/6091
ISSN: 1725-6704
Series/Number: EUI ECO; 2006/25
Publisher: European University Institute