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Money and Information in a New Neoclassical Synthesis Framework

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  • John Tsoukalas
  • Philip Arestis
  • Georgios Chortareas

Abstract

We consider an (otherwise standard) New Neoclassical Synthesis theoretical framework that allows a role for money. Money in our model has an informational role which consists in facilitating the estimation of the unobserved shocks that drive potential output and thus the state of the economy. For this purpose we estimate a small-scale sticky price model using Bayesian techniques. Our findings support the view that money has information value. This is reflected in higher precision in terms of unobserved model concepts such as the natural rate of output. Moreover, our results highlight how modelling money demand can provide insights about structural features of the economy that may be important for the design of interest rate rules. Focusing on money also allows for a step towards resolving the price puzzle. Money demand shocks can confound monetary policy shocks to generate a perverse price response in vector autoregressions (VAR).

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Paper provided by University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) in its series Discussion Papers with number 09/14.

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Handle: RePEc:not:notcfc:09/14

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Keywords: DSGE models; New Keynesian models; Money Monetary Policy; Bayesian analysis.;

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Cited by:
  1. Helge Berger & Henning Weber, 2012. "Money As Indicator for the Natural Rate of Interest," IMF Working Papers, International Monetary Fund 12/6, International Monetary Fund.
  2. Shu-Chun S. Yang & Nora Traum, 2010. "Monetary and Fiscal Policy Interactions in the Post-War U.S," IMF Working Papers, International Monetary Fund 10/243, International Monetary Fund.
  3. Seitz, Franz & Schmidt, Markus A., 2014. "Money in modern macro models: A review of the arguments," OTH im Dialog: Weidener Diskussionspapiere, University of Applied Sciences Amberg-Weiden (OTH) 37, University of Applied Sciences Amberg-Weiden (OTH).

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