Money and Risk Aversion in a DSGE Framework: A Bayesian Application to the Euro Zone
AbstractIn this paper, we set up and test a model of the Euro zone, with a special emphasis on the role of money. The model follows the New Keynesian DSGE framework, money being introduced in the utility function with a non-separability assumption. By using bayesian estimation techniques, we shed light on the determinants of output and inflation, but also of the interest rate, real money balances, flexible-price output and flexible-price real money balances variances. The role of money is investigated further. We find that its impact on output depends on the degree of agents’ risk aversion, increases with this degree, and becomes significant when risk aversion is high enough. The direct impact of the money variable on inflation variability is essentially minor whatever the risk aversion level, the interest rate (monetary policy) being the overwhelming explanatory factor.
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Bibliographic InfoPaper provided by ESSEC Research Center, ESSEC Business School in its series ESSEC Working Papers with number DR 10005.
Length: 36 pages
Date of creation: Apr 2010
Date of revision:
Bayesian Estimation; DSGE Model; Euro Area; Money;
Other versions of this item:
- Jonathan Benchimol & André Fourçans, 2010. "Money and risk aversion in a DSGE framework," Post-Print hal-00572374, HAL.
- Jonathan Benchimol & André Fourçans, 2010. "Money and risk aversion in a DSGE framework: a Bayesian application to the Euro zone," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) hal-00800082, HAL.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-08 (All new papers)
- NEP-CBA-2010-05-08 (Central Banking)
- NEP-DGE-2010-05-08 (Dynamic General Equilibrium)
- NEP-EEC-2010-05-08 (European Economics)
- NEP-MAC-2010-05-08 (Macroeconomics)
- NEP-MON-2010-05-08 (Monetary Economics)
- NEP-UPT-2010-05-08 (Utility Models & Prospect Theory)
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