Money and monetary policy in dynamic stochastic general equilibrium models

Arnab Bhattacharjee, Christoph Thoenissen

    Research output: Contribution to conferencePaper

    5 Citations (Scopus)

    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
    Publication statusPublished - 2007
    EventMoney Macro and Finance (MMF) Research Group Conference 2006 - York, United Kingdom
    Duration: 1 Sep 200915 Sep 2009

    Conference

    ConferenceMoney Macro and Finance (MMF) Research Group Conference 2006
    CountryUnited Kingdom
    CityYork
    Period1/09/0915/09/09

    Keywords

    • intertemporal macroeconomics
    • role of money
    • monetary policy
    • model selection
    • moment matching

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    Bhattacharjee, A., & Thoenissen, C. (2007). Money and monetary policy in dynamic stochastic general equilibrium models. Paper presented at Money Macro and Finance (MMF) Research Group Conference 2006, York, United Kingdom. http://repec.org/mmf2006/up.3748.1145454624.pdf