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Does Money Matter for the Identification of Monetary Policy Shocks: A DSGE Perspective

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  • Poilly, C.

Abstract

This paper investigates how the identification assumptions of monetary policy shocks modify the inference in a standard DSGE model. Considering SVAR models in which either the interest rate is predetermined for money or these two monetary variables are simultaneously determined, two DSGE models are estimated by Minimum Distance Estimation. We emphasize that real balance effects are necessary to replicate the high persistence implied by the simultaneity assumption. In addition, the estimated monetary policy rule is strongly sensitive to the identification scheme. This suggests that the way money is introduced in the identification scheme is not neutral for the estimation of DSGE models.

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Bibliographic Info

Paper provided by Banque de France in its series Working papers with number 184.

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Length: 42 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:bfr:banfra:184

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Keywords: SVAR model ; DSGE model ; Non recursive identification ; Money.;

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Cited by:
  1. Barthélemy, J. & Clerc L. & Marx, M., 2008. "A Two-Pillar DSGE Monetary Policy Model for the Euro Area," Working papers 219, Banque de France.
  2. V. Lewis & C. Poilly, 2011. "Firm Entry, Inflation and the Monetary Transmission Mechanism," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/705, Ghent University, Faculty of Economics and Business Administration.

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