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Banking and the role of money in the business cycle

  • Zanetti, Francesco

This paper enriches a standard New Keynesian model with a simple banking sector to investigate the role of money in the business cycle. Maximum likelihood estimation of the model suggests that money balances play a significant role in explaining the intertemporal allocation of consumption and the dynamics of inflation as described by the forward-looking IS and Phillips curves. Nonetheless, the responses of the model’s variables to shocks remain qualitatively similar to a model without money, suggesting that the omission of money balances leaves the model’s transmission mechanism unaffected.

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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 34 (2012)
Issue (Month): 1 ()
Pages: 87-94

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Handle: RePEc:eee:jmacro:v:34:y:2012:i:1:p:87-94
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