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Money in a Real Business Cycle Model

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  • Farmer, Roger E A

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.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 29 (1997)
Issue (Month): 4 (November)
Pages: 568-611

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Handle: RePEc:mcb:jmoncb:v:29:y:1997:i:4:p:568-611

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. Cooley, Thomas F & Hansen, Gary D, 1989. "The Inflation Tax in a Real Business Cycle Model," American Economic Review, American Economic Association, vol. 79(4), pages 733-48, September.
  2. repec:wop:humbsf:1996-65 is not listed on IDEAS
  3. Wolfgang HÄRDLE & J. MARRON & L. YANG, 1996. "Discussion," SFB 373 Discussion Papers 1996,65, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  4. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1995. "Capital utilization and returns to scale," Working Paper Series, Macroeconomic Issues 95-5, Federal Reserve Bank of Chicago.
  5. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
  6. Basu, Susanto & Fernald, John G., 1995. "Are apparent productive spillovers a figment of specification error?," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 165-188, August.
  7. King, Robert G. & Plosser, Charles I. & Stock, James H. & Watson, Mark W., 1991. "Stochastic Trends and Economic Fluctuations," American Economic Review, American Economic Association, vol. 81(4), pages 819-40, September.
  8. Martin Eichenbaum & Lawrence J. Christiano, 1992. "Liquidity Effects, Monetary Policy, and the Business Cycle," NBER Working Papers 4129, National Bureau of Economic Research, Inc.
  9. Benhabib, J. & Farmer, R.E.A, 1991. "Indeterminacy and Increasing Returns," Papers 165, Cambridge - Risk, Information & Quantity Signals.
  10. Jordi Galí, 1993. "Monopolistic competition, business cycles and the composition of aggregate demand," Economics Working Papers 45, Department of Economics and Business, Universitat Pompeu Fabra.
  11. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
  12. Fuerst, Timothy S., 1992. "Liquidity, loanable funds, and real activity," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 3-24, February.
  13. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
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