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A Segmented Markets Model to Teach Analysis of Monetary Policy Shocks in Developing Economies

Waknis, Parag (2017): A Segmented Markets Model to Teach Analysis of Monetary Policy Shocks in Developing Economies.

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Abstract

The standard undergraduate textbook models in macroeconomics like the IS-LM/AD-AS model are not disaggregated enough to understand the effects of monetary policy shocks in developing economies typically characterized by substantial informality, and goods and financial markets segmentation. In this paper, I present a version of a segmented markets model based on Williamson (2009, 2011) that could be used as an effective alternative. I demonstrate the use of the framework by analyzing the effects of demonetization- a substantial reduction in the availability of outside money- in a developing country setting.

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