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Does Money Matter in Shaping Domestic Business Cycles? An International Investigation (with appendices)

  • Fabio Canova
  • Tobias Menz

We study the contribution of money to business cycle fluctuations in the US, the UK, Japan, and the Euro area using a small scale structural monetary business cycle model. Constrained likelihood-based estimates of the parameters are provided and time instabilities analyzed. Real balances are statistically important for output and inflation fluctuations. Their contribution changes over time. Models giving money no role provide a distorted representation of the sources of cyclical fluctuations, of the transmission of shocks and of the events of the last 40 years.

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File URL: http://www.barcelonagse.eu/sites/default/files/working_paper_pdfs/516.pdf
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Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 516.

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Date of creation: Nov 2010
Handle: RePEc:bge:wpaper:516
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  1. Edward Nelson, 2000. "Direct effects of base money on aggregate demand: theory and evidence," Bank of England working papers 122, Bank of England.
  2. Alejandro Justiniano & Giorgio E. Primiceri & Andrea Tambalotti, 2008. "Investment shocks and business cycles," Working Paper Series WP-08-12, Federal Reserve Bank of Chicago.
  3. Chang, Yongsung & Doh, Taeyoung & Schorfheide, Frank, 2005. "Non-stationary Hours in a DSGE Model," CEPR Discussion Papers 5232, C.E.P.R. Discussion Papers.
  4. Smets, Frank & Wouters, Rafael, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," CEPR Discussion Papers 6112, C.E.P.R. Discussion Papers.
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  6. Andrés, Javier & López-Salido, J David & Nelson, Edward, 2008. "Money and the Natural Rate of Interest: Structural Estimates for the United States and the Euro Area," CEPR Discussion Papers 6812, C.E.P.R. Discussion Papers.
  7. Benhabib, Jess & Farmer, Roger E A, 1996. "The Monetary Transmission Mechanism," CEPR Discussion Papers 1404, C.E.P.R. Discussion Papers.
  8. Barthélemy, J. & Clerc L. & Marx, M., 2008. "A Two-Pillar DSGE Monetary Policy Model for the Euro Area," Working papers 219, Banque de France.
  9. Favara, Giovanni & Giordani, Paolo, 2002. "Reconsidering the Role of Money for Output, Prices and Interest Rates," SSE/EFI Working Paper Series in Economics and Finance 514, Stockholm School of Economics.
  10. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "Monetary policy rules and macroeconomic stability: Evidence and some theory," Economics Working Papers 350, Department of Economics and Business, Universitat Pompeu Fabra, revised May 1999.
  11. Gordon, David B & Leeper, Eric M, 1994. "The Dynamic Impacts of Monetary Policy: An Exercise in Tentative Identification," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1228-1247, December.
  12. Fabio Canova & Luca Gambetti & Evi Pappa, 2007. "The Structural Dynamics of Output Growth and Inflation: Some International Evidence," Economic Journal, Royal Economic Society, vol. 117(519), pages C167-C191, 03.
  13. Edward Nelson, 2008. "Why Money Growth Determines Inflation in the Long Run: Answering the Woodford Critique," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(8), pages 1791-1814, December.
  14. repec:fth:starer:9613 is not listed on IDEAS
  15. Anton Nakov & Andrea Pescatori, 2007. "Oil and the Great Moderation," Working Paper 0717, Federal Reserve Bank of Cleveland.
  16. Michael Woodford, 2007. "How Important is Money in the Conduct of Monetary Policy?," NBER Working Papers 13325, National Bureau of Economic Research, Inc.
  17. Christopher A. Sims & Tao Zha, 2005. "Were There Regime Switches in U.S. Monetary Policy?," Working Papers 92, Princeton University, Department of Economics, Center for Economic Policy Studies..
  18. Zvi Hercowitz & Jeffrey C. Campbell, 2005. "The Role of Collateralized Household Debt in Macroeconomic Stabilization," 2005 Meeting Papers 120, Society for Economic Dynamics.
  19. BENNETT T. McCALLUM, 2008. "How Important Is Money in the Conduct of Monetary Policy? A Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(8), pages 1783-1790, December.
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