MARKET SEGMENTATION AND THE RESPONSE OF THE REAL INTEREST RATE TO MONETARY POLICY SHOCKS

@inproceedings{Occhino2008MARKETSA,
  title={MARKET SEGMENTATION AND THE RESPONSE OF THE REAL INTEREST RATE TO MONETARY POLICY SHOCKS},
  author={Filippo Occhino},
  year={2008}
}
Following a contractionary monetary policy shock, the aggregate output decreases over time for six to eight quarters, while the real interest rate increases immediately and remains high for three quarters, which can hardly be replicated by models characterized by a standard consumption Euler equation. This paper adopts a segmented markets framework where some households are permanently excluded from financial markets. The monetary authority controls the short-term nominal interest rate, and… CONTINUE READING

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