This paper characterizes analytically the persistent liquidity effects
money injection in a model economy with goods market segmentation as
as financial market segmentation. Households in financial sectors receive
money transfers from the central bank and have access to the bond market,
while others outside financial sectors do not receive money transfers
have no access to the bond market. Also, a shock that causes households
relocate between financial sectors leads to more consumption expenditure
for both types of households. This goods market effect then causes a
injection to diffuse through the economy over time, generating persistent
liquidity effects even when the money growth shock is transitory. This
empirically important because persistent liquidity effects have been observed
in many countries with a relatively low persistence of money growth.