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Money and risk in a DSGE framework: A Bayesian application to the Eurozone

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  • Benchimol, Jonathan
  • Fourçans, André

Abstract

We present and test a model of the Eurozone, with a special emphasis on the role of risk aversion and money. The model follows the New Keynesian DSGE framework, money being introduced in the utility function with a non-separability assumption. Money is also introduced in the Taylor rule. By using Bayesian estimation techniques, we shed light on the determinants of output, inflation, money, interest rate, flexible-price output, and flexible-price real money balance dynamics. The role of money is investigated further. Its impact on output depends on the degree of risk aversion. Money plays a minor role in the estimated model. Yet, a higher level of risk aversion would imply that money had significant quantitative effects on business cycle fluctuations.

Suggested Citation

  • Benchimol, Jonathan & Fourçans, André, 2012. "Money and risk in a DSGE framework: A Bayesian application to the Eurozone," Journal of Macroeconomics, Elsevier, vol. 34(1), pages 95-111.
  • Handle: RePEc:eee:jmacro:v:34:y:2012:i:1:p:95-111
    DOI: 10.1016/j.jmacro.2011.10.003
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    More about this item

    Keywords

    Euro area; Money; Risk; Bayesian estimation; DSGE;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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    1. McCallum rule in Wikipedia English
    2. Politica monetaria in Wikipedia Italian
    3. Пари in Wikipedia Bulgarian
    4. Regla de Taylor in Wikipedia Spanish
    5. Monnaie in Wikipedia French
    6. Robert E. Lucas in Wikipedia French

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