Persistent Liquidity Effects and Long Run Money Demand

  title={Persistent Liquidity Effects and Long Run Money Demand},
  author={F. {\'A}lvarez and F. Lippi},
  journal={NBER Working Paper Series},
We present a monetary model in the presence of segmented asset markets that implies a persistent fall in interest rates after a once and for all increase in liquidity. The gradual propagation mechanism produced by our model is novel in the literature. We provide an analytical characterization of this mechanism, showing that the magnitude of the liquidity effect on impact, and its persistence, depend on the ratio of two parameters: the long-run interest rate elasticity of money demand and the… Expand
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