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

Javier Andrés (), David Lopez-Salido and Edward Nelson

Journal of Economic Dynamics and Control, 2009, vol. 33, issue 3, 758-776

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)
Date: 2009
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Citations: View citations in EconPapers (94)

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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 (2008)
Working Paper: Money and the natural rate of interest: structural estimates for the United States and the Euro area (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:33:y:2009:i:3:p:758-776

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