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Does Money Matter for the Identification of Monetary Policy Shocks: A DSGE Perspective

Listed author(s):
  • Poilly, C.

This paper investigates how the identification assumptions of monetary policy shocks modify the inference in a standard DSGE model. Considering SVAR models in which either the interest rate is predetermined for money or these two monetary variables are simultaneously determined, two DSGE models are estimated by Minimum Distance Estimation. We emphasize that real balance effects are necessary to replicate the high persistence implied by the simultaneity assumption. In addition, the estimated monetary policy rule is strongly sensitive to the identification scheme. This suggests that the way money is introduced in the identification scheme is not neutral for the estimation of DSGE models.

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File URL: https://publications.banque-france.fr/sites/default/files/medias/documents/working-paper_184_2007.pdf
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Paper provided by Banque de France in its series Working papers with number 184.

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Length: 42 pages
Date of creation: 2007
Handle: RePEc:bfr:banfra:184
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Web page: http://www.banque-france.fr/

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