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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. Francis X. Diebold, 1997. "The past, present, and future of macroeconomic forecasting," Working Papers 97-20, Federal Reserve Bank of Philadelphia.
  2. 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.
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  11. 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.
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  15. Lawrence J. Christiano & Mathias Trabandt & Karl Walentin, 2010. "DSGE Models for Monetary Policy Analysis," NBER Working Papers 16074, National Bureau of Economic Research, Inc.
  16. 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.
  17. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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