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Does Money Matter in Shaping Domestic Business Cycles? An International Investigation

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  • FABIO CANOVA
  • TOBIAS MENZ

Abstract

We study the contribution of money to business‐cycle fluctuations in the United States, the United Kingdom, Japan, and the euro area using a small‐scale structural monetary business cycle model. Constrained likelihood‐based estimates of the parameters are provided and time instabilities analyzed. Real balances are statistically important for output and inflation fluctuations. Their contribution changes over time. Models giving money no role provide a distorted representation of the sources of cyclical fluctuations, of the transmission of shocks, and of the events of the last 40 years.

Suggested Citation

  • Fabio Canova & Tobias Menz, 2011. "Does Money Matter in Shaping Domestic Business Cycles? An International Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(4), pages 577-607, June.
    • Handle: RePEc:wly:jmoncb:v:43:y:2011:i:4:p:577-607
    DOI: 10.1111/j.1538-4616.2011.00388.x
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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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