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Estimating the Evolution of Money’s Role in the U.S. Monetary Business Cycle

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  • EFREM CASTELNUOVO

Abstract

We assess the time-varying money's role in the post-WWII U.S. business cycle by estimating a new-Keynesian framework featuring nonseparability in real balances and consumption, portfolio adjustment costs, and a systematic reaction of policymakers to money growth. Rolling-window Bayesian estimations a la Canova (2009) are contrasted to a full sample fixed-coefficient investigation. Our results suggest that the assumption of stable parameters is unwarranted. The omission of money may induce biased assessments on the impact of structural shocks to the U.S. macroeconomic aggregates, especially during the great inflation period.
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  • Efrem Castelnuovo, 2012. "Estimating the Evolution of Money‚Äôs Role in the U.S. Monetary Business Cycle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(1), pages 23-52, February.
    • Handle: RePEc:mcb:jmoncb:v:44:y:2012:i:1:p:23-52
    DOI: j.1538-4616.2011.00468.x
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    More about this item

    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
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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