Money and Information in a New Neoclassical Synthesis Framework

Philip Arestis, Georgios Chortareas and John Tsoukalas

Discussion Papers from University of Nottingham, School of Economics

Abstract: We consider an (otherwise standard) New Neoclassical Synthesis theoretical framework that allows a role for money. Money in our model has an informational role which consists in facilitating the estimation of the unobserved shocks that drive potential output and thus the state of the economy. For this purpose we estimate a small-scale sticky price model using Bayesian techniques. Our findings support the view that money has information value. This is reflected in higher precision in terms of unobserved model concepts such as the natural rate of output. Moreover, our results highlight how modelling money demand can provide insights about structural features of the economy that may be important for the design of interest rate rules. Focusing on money also allows for a step towards resolving the price puzzle. Money demand shocks can confound monetary policy shocks to generate a perverse price response in vector autoregressions (VAR).

Keywords: DSGE models; New Keynesian models; Money; Monetary Policy; Bayesian analysis (search for similar items in EconPapers)
Date: 2010-01
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Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Money and Information in a New Neoclassical Synthesis Framework (2010)
Working Paper: Money and Information in a New Neoclassical Synthesis Framework (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:not:notecp:10/01

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