Money and Monetary Policy in Dynamic Stochastic General Equilibrium Models

Arnab Bhattacharjee, Christoph Thoenissen

    Research output: Contribution to conferencePaper

    5 Citations (Scopus)
    103 Downloads (Pure)

    Abstract

    We compare three methods of motivating money in New Keynesian DSGE Models: Money-in-the-utility function, shopping time and cash-in-advance constraint, as well as two ways of modelling monetary policy, interest rate feedback rule and money growth rules. We use impulse response analysis, and a set of econometric distance measures based on comparing model and data variance-covariance matrices to compare the different models. We find all models closed by an estimated interest rate feedback rule imply counter-cyclical policy and inflation rates, which is at odds with the data. This problem is robust to the introduction of demand side shocks, but is not a feature of models closed by an estimated money growth rule. Drawing on our econometric analysis, we argue that the cash-in-advance model, closed by a money growth rule, comes closest to the data
    Original languageEnglish
    Number of pages35
    Publication statusPublished - 2007
    EventMoney Macro and Finance (MMF) Research Group 38th Annual Conference 2006 - York, United Kingdom
    Duration: 13 Sep 200615 Sep 2006

    Conference

    ConferenceMoney Macro and Finance (MMF) Research Group 38th Annual Conference 2006
    CountryUnited Kingdom
    CityYork
    Period13/09/0615/09/06

    Keywords

    • Intertemporal macroeconomics
    • role of money
    • Monetary policy
    • model selection
    • moment matching

    Fingerprint Dive into the research topics of 'Money and Monetary Policy in Dynamic Stochastic General Equilibrium Models'. Together they form a unique fingerprint.

    Cite this