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The New Keynesian Model and the Euro Area Business Cycle

  • Miguel Casares

This paper describes a New Keynesian model incorporating transactions-facilitating money and a time-to-build constraint into endogenous capital accumulation. The calibrated New Keynesian model performs almost as well as the estimated vector autoregressive model in replicating Euro area cyclical correlations between key variables such as output and inflation, although it fares less well in predicting the procyclical dynamics of nominal interest rates. The presence of a time-to-build requirement in the model helps to improve its fit to Euro area data, whereas the role of transactions-facilitating money is much less important. Impulse-response functions and a decomposition of variance complete the analysis. Copyright Blackwell Publishing Ltd and the Department of Economics, University of Oxford 2007.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0084.2006.00440.x
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Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics and Statistics.

Volume (Year): 69 (2007)
Issue (Month): 2 (04)
Pages: 209-244

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Handle: RePEc:bla:obuest:v:69:y:2007:i:2:p:209-244
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