A Segmented Market Model Incorporating Endogenous Policy RiskJia Ji
- General Medicine
This paper develops a segmented market model to incorporate policy risk. Credit risks and information inertia are considered within the model’s framework. The model shows that a high level of policy uncertainty has a negative impact on the capital market’s participation rate, which in turn, determines the effectiveness of monetary policy. This suggests that policy risk is an endogenous factor, and that the authority should control policy uncertainties.