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The Distribution of Liquidity in a Monetary Union with Different Portfolio Rigidities

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  • Nuno Alves

Abstract

This paper analyses the monetary transmission mechanism in a monetary union with a segmented financial market. Differences in the households' information sets imply that a money supply shock yields permanently heterogeneous allocations across households. The distribution of liquidity is fundamental to this equilibrium. This distribution is also important to understand the response of the macroeconomic variables to a technology shock. In this case, a money supply rule yields heterogenous allocations between households, while an interest rate peg undoes the portfolio friction, yielding the same allocation across agents.

Suggested Citation

  • Nuno Alves, 2003. "The Distribution of Liquidity in a Monetary Union with Different Portfolio Rigidities," Working Papers w200306, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w200306
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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