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Money and risk in a DSGE framework: A Bayesian application to the Eurozone

Jonathan Benchimol () and Andre Fourcans ()

Journal of Macroeconomics, 2012, vol. 34, issue 1, 95-111

Abstract: We present and test a model of the Eurozone, with a special emphasis on the role of risk aversion and money. The model follows the New Keynesian DSGE framework, money being introduced in the utility function with a non-separability assumption. Money is also introduced in the Taylor rule. By using Bayesian estimation techniques, we shed light on the determinants of output, inflation, money, interest rate, flexible-price output, and flexible-price real money balance dynamics. The role of money is investigated further. Its impact on output depends on the degree of risk aversion. Money plays a minor role in the estimated model. Yet, a higher level of risk aversion would imply that money had significant quantitative effects on business cycle fluctuations.

Keywords: Euro area; Money; Risk; Bayesian estimation; DSGE (search for similar items in EconPapers)
JEL-codes: E31 E51 E58 (search for similar items in EconPapers)
Date: 2012
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Related works:
Working Paper: Money and risk in a DSGE framework: A Bayesian application to the Eurozone (2012)
Working Paper: Money and Risk Aversion in a DSGE Framework: A Bayesian Application to the Euro Zone (2010) Downloads
Working Paper: Money and risk aversion in a DSGE framework: a bayesian application to the euro zone (2010) Downloads
Working Paper: Money in a DSGE framework with an application to the Euro Zone (2009) Downloads
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