This paper assesses how the financial system influences the strength of the liquidity effect in a calibrated limited participation model of the monetary transmission mechanism. The model suggests that bankbased systems should be characterized by smaller liquidity effects since monetary...

In this paper we quantitatively evaluate the hypothesis that the Great Moderation is partly the result of a less activist monetary policy. We simulate a New Keynesian model where the central bank can only observe a noisy estimate of the output gap and fnd that the less pronounced reaction of the...