The role for search frictions for output and inflation dynamics: A Bayesian assessment

Martin Menner ()

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: A search-theoretic monetary DSGE model with capital and in¬ventory investment is estimated, and its implications on output and inflation dynamics are contrasted with those of standard flexible price monetary models: a cash-in-advance and a portfolio adjustment cost model. Model estimation and comparison is conducted in a Bayesian way in order to account for possible model misspecification. The search model can track inflation and output data better. It dominates the other models in the ability to predict the autocorrela¬tions of inflation, the contemporaneous correlation between output growth and inflation, and in the persistent (dis-)inflation process after a (technol¬ogy) monetary shock. It generates a hump-shaped but delayed output response to a monetary shock that matches the data better than the other models.

Keywords: Inflation and Output Dynamics; Business Cycle; Search-Theory of Money; Bayesian Estimation; Model Comparison. (search for similar items in EconPapers)
Pages: 40 pages
Date: 2009-03
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Citations: View citations in EconPapers (16)

Published by Ivie

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http://www.ivie.es/downloads/docs/wpasad/wpasad-2009-06.pdf Fisrt version / Primera version, 2009 (application/pdf)

Related works:
Working Paper: The role of search frictions for output and inflation dynamics: a Bayesian assessment (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2009-06

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