Financial market segmentation, stock market volatility and the role of monetary policy
نویسنده
چکیده
This paper explores the role of monetary policy in a segmented stock market model. Previous research (e.g Mankiw and Zeldes (1991), Vissing-Jørgensen (2002)) reports that only a fraction of the households participates in the stock market. In this paper participating households have stochastic dividend as part of their income and are, therefore, subject to financial market risk. Also, only participants receive monetary transfers. In such a setting, optimal monetary policy has the new role of perfectly sharing the financial market risk among all agents in the economy. This policy might not minimize neither stock price volatility nor inflation volatility. Furthermore, optimal monetary policy does not depend on the degree of participation and increased participation does not necessarily decreases stock prices volatility.
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