Money and the natural rate of interest: structural estimates for the United States and the euro area

Javier Andrés (), López-Salido, David () and Edward Nelson ()
Additional contact information
López-Salido, David: Federal Reserve Board

No 805, Banco de España Working Papers from Banco de España

Abstract: We examine the role of money in three environments: the New Keynesian model with separable utility and static money demand; a nonseparable utility variant with habit formation; and a version with adjustment costs for holding real balances. The last two variants imply forward-looking behavior of real money balances, with forecasts of future interest rates entering current portfolio decisions. We conduct a structural econometric analysis of the U.S. and euro area economies. FIML estimates confirm the forward-looking character of money demand. A consequence is that real money balances are valuable in anticipating future variations in the natural interest rate.

Keywords: Money; natural rate; New Keynesian models (search for similar items in EconPapers)
JEL-codes: E51 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
Date: 2008-03

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Related works:
Working Paper: Money and the Natural Rate of Interest: Structural Estimates for the United States and the Euro Area (2008)
Working Paper: Money and the natural rate of interest: structural estimates for the United States and the Euro area (2007)
Journal Article: Money and the natural rate of interest: Structural estimates for the United States and the euro area (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:bde:wpaper:0805

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