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The Distribution of Liquidity in a Monetary Union with Different Portfolio Rigidities
E32 - Business Fluctuations; Cycles
E44 - Financial Markets and the Macroeconomy
E52 - Monetary Policy (Targets, Instruments, and Effects)
F41 - Open Economy Macroeconomics
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.