Money in an Estimated Business Cycle Model of the Euro Area
AbstractWe present maximum likelihood estimates of a small scale dynamic general equilibrium model for the Eurozone. We pay special attention to the role of money, both through its direct effect upon private agents’ decisions and as a component of the monetary policy rule. Our results can be summarized as follows. First, we find no direct effect of money upon inflation and output but money growth plays a significant role in the interest rate rule. Second, money demand shocks mainly help to forecast real balances while real shocks explain the bulk of price, output and interest rates fluctuations. Third, the estimated model predicts sensible conditional correlations among those variables both to demand and supply disturbances. Finally, the systematic response of interest rates to money growth does not seem to have affected the output-inflation variability trade-off.
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Bibliographic InfoPaper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0121.
Length: 37 pages
Date of creation: Dec 2001
Date of revision:
Other versions of this item:
- Javier Andrés & J. David López-Salido & Javier Vallés, 2006. "Money in an Estimated Business Cycle Model of the Euro Area," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 116(511), pages 457-477, 04.
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