We develop an equilibrium model of the monetary policy transmission mechanism that highlights information frictions in the market for money and search frictions in the labour market. The information friction increases the persistence in the response of interest rates following monetary policy...

Two problems exist in standard limited-participation models: (1) the liquidity effect is not as persistent as in the data; and (2) some nominal variables are unrealistically volatile. To address these problems, we introduce nominal wage, price, and portfolio adjustment costs, to better understand...