Working Paper: CEPR ID: DP8107
Authors: Fabio Canova; Tobias Menz
Abstract: We study the contribution of money to business cycle fluctuations in the US, the UK, Japan, and the Euro area using a small scale structural monetary business cycle model. Constrained likelihood-based estimates of the parameters are provided and time instabilities analyzed. Real balances are statistically important for output and inflation fluctuations. Their contribution changes over time. Models giving money no role provide a distorted representation of the sources of cyclical fluctuations, of the transmission of shocks and of the events of the last 40 years.
Keywords: business cycles; inflation; dynamics; money; shock transmission
JEL Codes: E31; E32; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| money (E42) | domestic fluctuations in output (E32) |
| money (E42) | domestic fluctuations in inflation (E31) |
| money (E42) | Euler equation (C69) |
| money (E42) | Phillips curve (E31) |
| money (E42) | nominal interest rates (E43) |
| nominal interest rates (E43) | Euler equation (C69) |
| nominal interest rates (E43) | Phillips curve (E31) |
| money (E42) | misinterpretations of economic phenomena (E65) |