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Money in a DSGE framework with an application to the Euro Zone

Jonathan Benchimol () and Andre Fourcans ()

No DR 09005, ESSEC Working Papers from ESSEC Research Center, ESSEC Business School

Abstract: In the current New Keynesian literature, the role of monetary aggregates is generally neglected. Yet it’s hard to imagine money completely “passive” to the rest of the system. By entering real money balances in a non-separable utility function, we introduce an explicit role for money via preference redefinition in a simple New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model. It involves new inflation and output gap specifications where money plays a significant role. We use the General Method of Moments (GMM) to calibrate our DSGE model of the Euro area and we show that the European Central Bank –ECB) should react more strongly to economic shocks as far as the role of money is found significant.

Keywords: ECB; Inflation; Monetary Policy; Money (search for similar items in EconPapers)
JEL-codes: E31 E51 E58 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2009-09
New Economics Papers: this item is included in nep-cba, nep-dge, nep-eec, nep-mac and nep-mon
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Related works:
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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