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

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Author Info
Céline Poilly () (Banque de France, DGEI-DIR, Service de Recherche en économie et finance, and University of Cergy-Pontoise,THEMA)

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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 to introduce money in the identification scheme is not neutral for estimation of DSGE models.

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Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2007-23.

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Date of creation: 2007
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Handle: RePEc:ema:worpap:2007-23

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

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Find related papers by JEL classification:
E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Barthélemy, J. & Clerc L. & Marx, M., 2008. "A Two-Pillar DSGE Monetary Policy Model for the Euro Area," Documents de Travail 219, Banque de France. [Downloadable!]
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