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Money in a DSGE framework with an application to the Euro Zone

Author

Listed:
  • André Fourçans

    (ESSEC Business School)

  • Jonathan Benchimol

    (ESSEC Business School)

Abstract

In the current New Keynesian literature, the role of monetary aggregates is generally neglected. Yet it's hard to imagine money completely "passive" to the rest of the system. By entering real money balances in a non-separable utility function, we introduce an explicit role for money via preference redefinition in a simple New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model. It involves new inflation and output gap specifications where money plays a significant role. We use the General Method of Moments (GMM) to calibrate our DSGE model of the Euro area and we show that the European Central Bank –ECB) should react more strongly to economic shocks as far as the role of money is found significant.

Suggested Citation

  • André Fourçans & Jonathan Benchimol, 2009. "Money in a DSGE framework with an application to the Euro Zone," Post-Print hal-00553495, HAL.
    • Handle: RePEc:hal:journl:hal-00553495
    Note: View the original document on HAL open archive server: https://essec.hal.science/hal-00553495
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    More about this item

    Keywords

    ECB; Monetary Policy; Money; BCE; Inflation; Monnaie; Politique monétaire;
    All these keywords.

    JEL classification:

    • 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

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