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Money and monetary policy in the Eurozone: an empirical analysis during crises

Author

Listed:
  • Jonathan Benchimol

    (BoI - Bank of Israel)

  • André Fourçans

    (ESSEC Business School and THEMA (UMR 8184) - ESSEC Business School - THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université)

Abstract

This paper analyzes the role of money and monetary policy as well as the forecasting performance of New Keynesian dynamic stochastic general equilibrium models with and without separability between consumption and money. The study is conducted over three crisis periods in the Eurozone, namely, the ERM crisis, the dot-com crisis, and the global financial crisis (GFC). The results of successive Bayesian estimations demonstrate that during these crises, the nonseparable model generally provides better out-of-sample output forecasts than the baseline model. We also demonstrate that money shocks have some impact on output variations during crises, especially in the case of the GFC. Furthermore, the response of output to a money shock is more persistent during the GFC than during the other crises. The impact of monetary policy also changes during crises. Insofar as the GFC is concerned, this impact increases at the beginning of the crisis, but decreases sharply thereafter.

Suggested Citation

  • Jonathan Benchimol & André Fourçans, 2017. "Money and monetary policy in the Eurozone: an empirical analysis during crises," Post-Print hal-01525492, HAL.
  • Handle: RePEc:hal:journl:hal-01525492
    DOI: 10.1017/S1365100515000644
    Note: View the original document on HAL open archive server: https://essec.hal.science/hal-01525492v1
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    Cited by:

    1. Benchimol, Jonathan & El-Shagi, Makram, 2020. "Forecast performance in times of terrorism," Economic Modelling, Elsevier, vol. 91(C), pages 386-402.
    2. Rafiq, Shuddhasattwa, 2022. "How did house and stock prices respond to different crisis episodes since the 1870s?," Economic Modelling, Elsevier, vol. 114(C).
    3. Benchimol, Jonathan & Ivashchenko, Sergey, 2021. "Switching volatility in a nonlinear open economy," Journal of International Money and Finance, Elsevier, vol. 110(C).
    4. Čapek, Jan & Crespo Cuaresma, Jesús & Hauzenberger, Niko & Reichel, Vlastimil, 2023. "Macroeconomic forecasting in the euro area using predictive combinations of DSGE models," International Journal of Forecasting, Elsevier, vol. 39(4), pages 1820-1838.
    5. Benchimol, Jonathan, 2024. "Central bank objectives, monetary policy rules, and limited information," Journal of Macroeconomics, Elsevier, vol. 80(C).
    6. Caraiani, Petre, 2016. "Money and output causality: A structural approach," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 220-236.
    7. Benchimol, Jonathan & Fourçans, André, 2019. "Central bank losses and monetary policy rules: A DSGE investigation," International Review of Economics & Finance, Elsevier, vol. 61(C), pages 289-303.
    8. Pedro J. Gutiérrez-Diez & Tibor Pál, 2023. "Monetary policy models: lessons from the Eurozone crisis," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-19, December.
    9. Benchimol, Jonathan, 2016. "Money and monetary policy in Israel during the last decade," Journal of Policy Modeling, Elsevier, vol. 38(1), pages 103-124.
    10. K. N. Ermolaev & N. V. Manokhina & T. E. Stepanova, 2024. "Tightening of monetary policy as the root cause of the crisis of the banking system in modern conditions," Russian Journal of Social Sciences and Humanities, Omsk Humanitarian Academy, vol. 18(1), pages 190-199, March.
    11. Benchimol, Jonathan & Qureshi, Irfan, 2020. "Time-varying money demand and real balance effects," Economic Modelling, Elsevier, vol. 87(C), pages 197-211.
    12. Pham, Binh Thai & Sala, Hector & Silva, José I., 2020. "Growth and real business cycles in Vietnam and the Asean-5. Does the trend shock matter?," Economic Systems, Elsevier, vol. 44(1).
    13. John H. Cochrane, 2017. "Michelson-Morley, Fisher, and Occam: The Radical Implications of Stable Quiet Inflation at the Zero Bound," NBER Chapters, in: NBER Macroeconomics Annual 2017, volume 32, pages 113-226, National Bureau of Economic Research, Inc.
    14. Jonathan Benchimol & André Fourçans, 2016. "Nominal income versus Taylor-type rules in practice," Working Papers hal-01357870, HAL.
    15. Ibrahim N Ouattara & Balakissa Kone, 2023. "The effect of exchange rate on the money demand: evidence from ECOWAS countries," Economics Bulletin, AccessEcon, vol. 43(4), pages 1565-1580.
    16. Caraiani, Petre, 2016. "The role of money in DSGE models: a forecasting perspective," Journal of Macroeconomics, Elsevier, vol. 47(PB), pages 315-330.
    17. Lebre DE Freitas, Miguel, 2022. "International currency substitution and the demand for money in the euro area," Economic Modelling, Elsevier, vol. 117(C).
    18. Sui, Jianli & Liu, Biying & Li, Zhigang & Zhang, Chengping, 2022. "Monetary and macroprudential policies, output, prices, and financial stability," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 212-233.
    19. Jonathan Benchimol & André Fourçans, 2017. "Monetary Rule, Central Bank Loss and Household’s Welfare: an Empirical Investigation," Globalization Institute Working Papers 329, Federal Reserve Bank of Dallas.

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    More about this item

    Keywords

    Money; Monetary policy; Economic crises; DSGE models; Money demand; Eurozone crisis; Money supply;
    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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