Modeling money
By: Lawrence J. Christiano, Martin Eichenbaum, Charles L. Evans.
Contributors: Eichenbaum, Martin S.; Evans, Charles Leonard.; National Bureau of Economic Research.
Series: NBER working paper series -- working paper 6371; Working paper series (National Bureau of Economic Research) -- working paper no. 6371.
Publisher: National Bureau of Economic Research
Published: 1998
Place of publication: Cambridge, MA
Language: eng
Number of pages: 38
Subjects: Monetary policy -- Econometric models.; Business cycles -- Econometric models.
Description: We develop and implement a limited information diagnostic strategy for assessing the plausibility of monetary business cycle models. Our strategy focuses on a model's ability to reproduce empirical estimates of an actual economy's response to monetary policy shocks. A key input to this diagnostic is a univariate time series representation of the response of money to a shock in monetary policy. We find that a monetary policy shock has only a small contemporaneous effect on the monetary base and M1. Its primary effect is to signal future movements in the money supply. We implement our diagnostic strategy on a limited participation model of money which stresses the importance of credit market frictions in the monetary transmission mechanism.
Notes: "January 1998."

JEL no. E3, E5.

Includes bibliographical references (p. 34-37).

Electronic access limited to Binghamton University faculty, staff and students for instructional and research purposes only.

Electronic version available via the Internet at the NBER World Wide Web site.

Financial support from the National Science Foundation