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Wiley InterScience | |||
  The Economic JournalVolume 116 Issue 511, Pages 457 - 477 Published Online: 31 Mar 2006 Journal compilation © 2010 by the Royal Economic Society (Registered Charity No. 231508) Published on behalf of the Royal Economic Society
Abstract | References | Full Text: HTML, PDF (Size: 204K) | Related Articles | Citation Tracking  Money in an Estimated Business Cycle Model of the Euro Area* * We thank Jordi Galí, Gabriel Pérez-Quiros and Frank Smets for comments as well as Peter Ireland for help with the estimation programs. We also thank the the referees for comments. The views expressed here are those of the authors and do not represent the view of the Bank of Spain. Javier Andrés acknowledges financial suport from CICYT grant SEC2002-0026, SEJ2005-01365. Copyright 2006 Royal Economic Society ABSTRACTThis article examines the role of money in a small-scale dynamic general equilibrium model of the euro zone estimated by maximum likelihood. The model allows for both intertemporal and intratemporal non-separability in preferences. We find, first, that real balances do not affect the marginal utility of consumption. Second, money demand shocks mainly help to forecast real balances while real shocks explain the bulk of price, output and interest rates fluctuations. Third, the calculation of the natural rate of interest reveals that the evolution of the interest rate is mostly accounted for by the real sources of fluctuations. Submitted: 5 March 2003 Accepted: 21 February 2005 | 
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