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The role of money and monetary policy in crisis periods: the Euro area case

In this paper, we test two models of the Eurozone, with a special emphasis on the role of money and monetary policy during crises. The role of separability between money and consumption is investigated further and we analyse the Euro area economy during three different crises: 1992, 2001 and 2007. We find that money has a rather significant role to play in explaining output variations during crises whereas, at the same time, the role of monetary policy on output decreases significantly. Moreover, we find that a model with non-separability between consumption and money has better forecasting performance than a baseline separable model over crisis periods.

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File URL: http://hal-essec.archives-ouvertes.fr/docs/00/67/28/06/PDF/WP1201.pdf
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Paper provided by ESSEC Research Center, ESSEC Business School in its series ESSEC Working Papers with number WP1201.

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Length: 34 pages
Date of creation: 01 Feb 2012
Date of revision: 27 Feb 2012
Handle: RePEc:ebg:essewp:dr-12001
Contact details of provider: Postal: ESSEC Research Center, BP 105, 95021 Cergy, France
Web page: http://www.essec.edu/
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  1. Javier Andrés & J. David López-Salido & Javier Vallés, 2006. "Money in an Estimated Business Cycle Model of the Euro Area," Economic Journal, Royal Economic Society, vol. 116(511), pages 457-477, 04.
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  9. Rabanal, Pau & Rubio-Ramirez, Juan F., 2005. "Comparing New Keynesian models of the business cycle: A Bayesian approach," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1151-1166, September.
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  11. Francis X. Diebold, 1997. "The Past, Present, and Future of Macroeconomic Forecasting," NBER Working Papers 6290, National Bureau of Economic Research, Inc.
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  14. Fagan, Gabriel & Henry, Jérôme & Mestre, Ricardo, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 0042, European Central Bank.
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  16. Adolfson, Malin & Laseen, Stefan & Linde, Jesper & Villani, Mattias, 2007. "Bayesian estimation of an open economy DSGE model with incomplete pass-through," Journal of International Economics, Elsevier, vol. 72(2), pages 481-511, July.
  17. Fernandez-Villaverde, Jesus & Francisco Rubio-Ramirez, Juan, 2004. "Comparing dynamic equilibrium models to data: a Bayesian approach," Journal of Econometrics, Elsevier, vol. 123(1), pages 153-187, November.
  18. Frederic S. Mishkin, 2011. "Over the Cliff: From the Subprime to the Global Financial Crisis," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 49-70, Winter.
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