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

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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.

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  • Benchimol, Jonathan & Fourçans, André, 2009. "Money in a DSGE framework with an application to the Euro Zone," ESSEC Working Papers DR 09005, ESSEC Research Center, ESSEC Business School.
    • Handle: RePEc:ebg:essewp:dr-09005
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    Cited by:

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    2. Franz Seitz & Markus A. Schmidt, 2014. "Money In Modern Macro Models: A Review of the Arguments," Journal of Reviews on Global Economics, Lifescience Global, vol. 3, pages 156-174.

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    More about this item

    Keywords

    ECB; Inflation; Monetary Policy; Money;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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