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Journal Articles Journal of Macroeconomics Year : 2012

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

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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.
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Dates and versions

hal-00674324 , version 1 (27-02-2012)

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Jonathan Benchimol, André Fourçans. Money and risk in a DSGE framework: A Bayesian application to the Eurozone. Journal of Macroeconomics, 2012, 34 (1), pp.95-111. ⟨10.1016/j.jmacro.2011.10.003⟩. ⟨hal-00674324⟩
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