European Business Schools Librarian's Group

ESSEC Working Papers,
ESSEC Research Center, ESSEC Business School

No DR 09005: Money in a DSGE framework with an application to the Euro Zone

Jonathan Benchimol () and André Fourçans ()
Additional contact information
Jonathan Benchimol: ESSEC Business School, Postal: Avenue Bernard Hirsch - B.P. 50105, 95021 CERGY-PONTOISE Cedex , FRANCE, ,
André Fourçans: ESSEC Business School, Postal: Avenue Bernard Hirsch - B.P. 50105, 95021 CERGY-PONTOISE Cedex , FRANCE,

Abstract: In the current New Keynesian literature, the role of monetary aggregates is generally neglected. Yet it’s hard to imagine money completely “passive” to the rest of the system. By entering real money balances in a non-separable utility function, we introduce an explicit role for money via preference redefinition in a simple New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model. It involves new inflation and output gap specifications where money plays a significant role. We use the General Method of Moments (GMM) to calibrate our DSGE model of the Euro area and we show that the European Central Bank –ECB) should react more strongly to economic shocks as far as the role of money is found significant.

Keywords: ECB; Inflation; Monetary Policy; Money

JEL-codes: E31; E51; E58

26 pages, September 2009

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