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Money and risk in a DSGE framework: A Bayesian application to the Eurozone

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  • Benchimol, Jonathan
  • Fourçans, André

Abstract

We present and test a model of the Eurozone, with a special emphasis on the role of risk aversion and money. The model follows the New Keynesian DSGE framework, money being introduced in the utility function with a non-separability assumption. Money is also introduced in the Taylor rule. By using Bayesian estimation techniques, we shed light on the determinants of output, inflation, money, interest rate, flexible-price output, and flexible-price real money balance dynamics. The role of money is investigated further. Its impact on output depends on the degree of risk aversion. Money plays a minor role in the estimated model. Yet, a higher level of risk aversion would imply that money had significant quantitative effects on business cycle fluctuations.

Suggested Citation

  • Benchimol, Jonathan & Fourçans, André, 2012. "Money and risk in a DSGE framework: A Bayesian application to the Eurozone," Journal of Macroeconomics, Elsevier, vol. 34(1), pages 95-111.
    • Handle: RePEc:eee:jmacro:v:34:y:2012:i:1:p:95-111
    DOI: 10.1016/j.jmacro.2011.10.003
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    More about this item

    Keywords

    Euro area; Money; Risk; Bayesian estimation; DSGE;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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    1. McCallum rule in Wikipedia English
    2. Politica monetaria in Wikipedia Italian
    3. Пари in Wikipedia Bulgarian
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    5. Monnaie in Wikipedia French
    6. Robert E. Lucas in Wikipedia French

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