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Money in a real business cycle model

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  • Roger E. A. Farmer

Abstract

This paper constructs a real business cycle model in which real money balances yield utility. The author calibrate the model to fit the first moments of U.S. data and he simulates a set of impulse response functions that are generated by the model for GDP, the rate of interest, money growth, and real balances. These theoretical impulse responses are compared with actual impulse responses from U.S. data. The model does a reasonably good job of capturing the dynamic interactions of money and real variables in U. S. data. It differs from most existing approaches by choosing a parameterization of utility for which the model admits the existence of indeterminate equilibria. The author agues that this fact is critical in explaining the monetary propagation mechanism. Copyright 1997 by Ohio State University Press.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Roger E. A. Farmer, 1997. "Money in a real business cycle model," Proceedings, Federal Reserve Bank of Cleveland, issue Nov, pages 568-623.
    • Handle: RePEc:fip:fedcpr:y:1997:i:nov:p:568-623
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    References listed on IDEAS

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    1. Gali Jordi, 1994. "Monopolistic Competition, Business Cycles, and the Composition of Aggregate Demand," Journal of Economic Theory, Elsevier, vol. 63(1), pages 73-96, June.
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    More about this item

    Keywords

    Business cycles; Money;

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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