Paper #1242

Title:

Does money matter in shaping domestic business cycles? An international investigation (with appendices)

Authors:

Fabio Canova and Tobias Menz

Date:

July 2009 (Revised: November 2010)

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:

Money, business cycles, shock transmission, inflation dynamics.

JEL codes:

E31, E32, E52.

Area of Research:

Macroeconomics and International Economics

Published in:

Journal of Money, Credit and Banking, 43(4), 577-609, 2011

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