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Abstract

A search-theoretic monetary DSGE model with capital and in¬ventory investment is estimated, and its implications on output and inflation dynamics are contrasted with those of standard flexible price monetary models: a cash-in-advance and a portfolio adjustment cost model. Model estimation and comparison is conducted in a Bayesian way in order to account for possible model misspecification. The search model can track inflation and output data better. It dominates the other models in the ability to predict the autocorrela¬tions of inflation, the contemporaneous correlation between output growth and inflation, and in the persistent (dis-)inflation process after a (technol¬ogy) monetary shock. It generates a hump-shaped but delayed output response to a monetary shock that matches the data better than the other models.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2009-06.pdf
File Function: Fisrt version / Primera version, 2009
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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2009-06.

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Length: 40 pages
Date of creation: Mar 2009
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2009-06

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Related research

Keywords: Inflation and Output Dynamics; Business Cycle; Search-Theory of Money; Bayesian Estimation; Model Comparison.;

Other versions of this item:

Find related papers by JEL classification:

• D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
• E19 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Other
• E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
• E49 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Other
• J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

This paper has been announced in the following NEP Reports:

• NEP-ALL-2009-04-13 (All new papers)
• NEP-CBA-2009-04-13 (Central Banking)
• NEP-DGE-2009-04-13 (Dynamic General Equilibrium)
• NEP-MAC-2009-04-13 (Macroeconomics)
• NEP-MON-2009-04-13 (Monetary Economics)

References

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1. S. Boragan Aruoba & Randall Wright, 2003. "Search, money, and capital: a neoclassical dichotomy," Proceedings, Federal Reserve Bank of Cleveland, pages 1085-1117.
   
   • S. Boragan Aruoba & Randall Wright, 2002. "Search, money and capital: a neoclassical dichotomy," Working Paper 0208, Federal Reserve Bank of Cleveland.
2. Ricardo Lagos & Randall Wright, 2002. "A unified framework for monetary theory and policy analysis," Working Paper 0211, Federal Reserve Bank of Cleveland.
   
   • Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 463-484, June.
   • Ricardo Lagos & Randall Wright, 2004. "A unified framework for monetary theory and policy analysis," Staff Report 346, Federal Reserve Bank of Minneapolis.
3. Nason, James M & Cogley, Timothy, 1994. "Testing the Implications of Long-Run Neutrality for Monetary Business Cycle Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(S), pages S37-70, Suppl. De.
   
   • Nason, J.M. & Cogley, T., 1994. "Testing the Implications of Long Run Neutrality for Monetary Business Cycle Models," UBC Departmental Archives 94-26, UBC Department of Economics.
4. Miquel Faig, 2001. "A Search Theory of Money and Commerce with Neoclassical Production," Working Papers faig-01-01, University of Toronto, Department of Economics.
   
   • Miquel Faig, 2001. "A search theory of money and commerce with Neoclassical production," Economics Working Papers 567, Department of Economics and Business, Universitat Pompeu Fabra.
5. Martin Menner, 2005. "A Search-Theoretic Monetary Business Cycle Model With Capital Formation," Economics Working Papers we056634, Universidad Carlos III, Departamento de Economía.
   
   • Martin Menner, 2006. "A Search-Theoretic Monetary Business Cycle Model with Capital Formation," The B.E. Journal of Macroeconomics, De Gruyter, vol. 0(1), pages 11.
   • Menner, Martin, . "A search-theoretic monetary business cycle model with capital formation," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/362, Universidad Carlos III de Madrid.
6. Peter Rupert & Martin Schindler & Andrei Shevchenko & Randall Wright, 2000. "The search-theoretic approach to monetary economics: a primer," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 10-28.
7. S. Boragan Aruoba & Christopher J. Waller & Randall Wright, 2007. "Money and capital," Working Paper 0714, Federal Reserve Bank of Cleveland.
   
   • Aruoba, S. Boragan & Waller, Christopher J. & Wright, Randall, 2011. "Money and capital," Journal of Monetary Economics, Elsevier, vol. 58(2), pages 98-116, March.
   • S. Boragan Aruoba & Christopher J. Waller, 2005. "Money and Capital," 2005 Meeting Papers 550, Society for Economic Dynamics.

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Citations

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Cited by:

1. Alfonso Rosa García & Hubert Janos Kiss & Ismael Rodríguez Lara, 2009. "Do social networks prevent bank runs?," Working Papers. Serie AD 2009-25, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
   
   • Hubert Janos Kiss & Ismael Rodriguez-Lara & Alfonso Rosa-Garcia, 2012. "Do Social Networks Prevent Bank Runs?," Discussion Papers in Economic Behaviour 0812, University of Valencia, ERI-CES.
   • Garcia-Rosa, Alfonso & Kiss, Hubert Janos & Rodriguez-Lara, Ismael, 2010. "Do Social Networks Prevent Bank Runs?," UMUFAE Economics Working Papers 9723, DIGITUM. Universidad de Murcia.
2. Elena Márquez & Belén Nieto Doménech & Gonzalo Rubio Irigoyen, 2010. "Consumption, liquidity and the cross-sectional variation of expected returns," Working Papers. Serie AD 2010-24, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
3. José M. Jiménez Gómez & María del Carmen Marco Gil & Pedro Gadea Blanco, 2010. "Some game-theoretic grounds for meeting people half-way," Working Papers. Serie AD 2010-04, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
4. Ramón Faulí-Oller, 2009. "Mergers of retailers with limited selling capacity," Working Papers. Serie AD 2009-26, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
5. David Cuberes & William R. Dougan, 2010. "How Endogenous Is Money? Evidence from a New Microeconomic Estimate," Working Papers. Serie AD 2010-08, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
   
   • Cuberes, David & Dougan, William, 2009. "How Endogenous Is Money? Evidence from a New Microeconomic Estimate," MPRA Paper 17744, University Library of Munich, Germany.
6. MOSSAY, Pascal & PICARD, Pierre M., 2009. "On spatial equilibria in a social interaction model," CORE Discussion Papers 2009063, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
   
   • Mossay, P. & Picard, P.M., 2011. "On spatial equilibria in a social interaction model," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2455-2477.
   • Pascal Mossay & Pierre M. Picard, 2009. "On Spatial Equilibria in a Social Interaction Model," CREA Discussion Paper Series 09-02, Center for Research in Economic Analysis, University of Luxembourg.
   • Pierre M. Picard & Pascal Mossay, 2010. "On spatial equilibria in a social interaction model," Working Papers. Serie AD 2010-14, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
7. José J. Sempere Monerris & Rafael Moner Colonques & Amparo Urbano Salvador, 2010. "Trade liberalization in vertically related markets," Working Papers. Serie AD 2010-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
8. Empar Pons Blasco & Luisa Escriche Bertolín, 2009. "Who moves up the career ladder? A model of gender differences in job promotion," Working Papers. Serie AD 2009-23, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
9. José M. Jiménez Gómez, 2010. "Noncooperative justifications for old bankruptcy rules," Working Papers. Serie AD 2010-15, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
10. Francesco Serti & Roberto Leombruni & Tiziano Razzolini, 2010. "The pecuniary and non-pecuniary costs of job displacement. An evaluation of the post-displacement injury rate," Working Papers. Serie AD 2010-12, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
11. Carolina Silva Cassorla, 2010. "The interaction of minimum wage and severance payments in a frictional labor market: theory and estimation," Working Papers. Serie AD 2010-22, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
12. Patricia Cubí Mollá, 2010. "Scaling methods for categorical self-assessed health measures," Working Papers. Serie AD 2010-01, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
13. Aurora Gómez Galvarriato & Cesar Guerrero-Luchtenberg, 2010. "Timing of protectionism," Working Papers. Serie AD 2010-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

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