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

  • Céline Poilly


    (Banque de France, DGEI-DIR, Service de Recherche en économie et finance, and University of Cergy-Pontoise,THEMA)

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 to introduce money in the identification scheme is not neutral for estimation of DSGE models.

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Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2007-23.

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Date of creation: 2007
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Handle: RePEc:ema:worpap:2007-23
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