Abstract
In this thesis I explore the relationships between nominal rigidities, market segmentation, and monetary policy in new Keynesian (NK) models. Specifically, I investigate how the presence of nominal rigidities affects the liquidity effect---a positive short-run relationship between money supply and nominal interest rates that has been found in the data, and I also study the effects of money policy on the economy, especially when the policy follows a Taylor’s (1993) rule. The results suggest that different assumptions on nominal rigidities may help the model capture the liquidity effect in different ways. Specifically, introducing the rigidity on commodity prices into the NK models may help the models generate stronger liquidity effects, while introducing the rigidity on nominal wage rates into the models may increase the persistence of the liquidity effect generated by the models. The results also suggest that for the NK models with market segmentation, the presence of nominal rigidities may help the models better explain the effects of monetary policy that have been suggested by previous empirical studies. Meanwhile, the results reveal that introducing wage rigidity into the models may enlarge the effect of monetary policy---either a rule on monetary growth rate or on nominal interest rate---on real output.