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Existence of Equilibrium for Segmented Markets Models with Interest Rate Monetary Policies

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  • Occhino Filippo

    (Rutgers University)

Abstract

Several studies have recently adopted the segmented markets model as a framework for monetary analysis. The characteristic assumption is that some households never participate in financial markets. This paper proves the existence of an equilibrium for segmented markets models where monetary policy is defined in terms of the short-term nominal interest rate. The model allows us to consider the important cases where monetary policy affects output, and responds to any sources of uncertainty, including output itself. The assumptions required for existence constrain the maximum value and the variability of the nominal interest rate. The period utility function is logarithmic. The proof is constructive, and shows how the model can be solved numerically. A similar proof can be used in the case that monetary policy is defined in terms of the bond supply.

Suggested Citation

  • Occhino Filippo, 2006. "Existence of Equilibrium for Segmented Markets Models with Interest Rate Monetary Policies," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 6(1), pages 1-21, December.
    • Handle: RePEc:bpj:bejtec:v:contributions.6:y:2006:i:1:n:11
    DOI: 10.2202/1534-5971.1288
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    More about this item

    Keywords

    equilibrium existence; segmented markets; limited participation; interest rate monetary policy;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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