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Money and Information in a New Neoclassical Synthesis Framework

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  • Philip Arestis
  • Georgios Chortareas
  • John D. Tsoukalas

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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Bibliographic Info

Paper provided by University of Nottingham, School of Economics in its series Discussion Papers with number 10/01.

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Handle: RePEc:not:notecp:10/01

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Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
Phone: (44) 0115 951 5620
Fax: (0115) 951 4159
Web page: http://www.nottingham.ac.uk/economics/
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Keywords: DSGE models; New Keynesian models; Money; Monetary Policy; Bayesian analysis;

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Citations

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Cited by:
  1. Helge Berger & Henning Weber, 2012. "Money As Indicator for the Natural Rate of Interest," IMF Working Papers 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 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 37, University of Applied Sciences Amberg-Weiden (OTH).

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