Money and Risk in a DSGE Framework: A Bayesian Application to the Eurozone

Citation:

Jonathan Benchimol and André Fourçans. 2012. “Money and Risk in a DSGE Framework: A Bayesian Application to the Eurozone.” Journal of Macroeconomics. [doi]
Paper421 KB

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.
Last updated on 01/17/2021