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

Jonathan Benchimol and Andre Fourcans ()

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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: Money supply; Money neutrality; Euro area; Money demand; Risk aversion; Bayesian estimation; DSGE models; Eurozone crisis (search for similar items in EconPapers)
Date: 2012-03
Note: View the original document on HAL open archive server: https://paris1.hal.science/hal-00674324v1
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Citations: View citations in EconPapers (59)

Published in Journal of Macroeconomics, 2012, 34 (1), pp.95-111. ⟨10.1016/j.jmacro.2011.10.003⟩

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Journal Article: Money and risk in a DSGE framework: A Bayesian application to the Eurozone (2012)
Working Paper: Money and risk in a DSGE framework: A Bayesian application to the Eurozone (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00674324

DOI: 10.1016/j.jmacro.2011.10.003

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