Money and information in a New Neoclassical Synthesis framework

Arestis, P., Chortareas, G. and Tsoukalas, J.D. (2010) Money and information in a New Neoclassical Synthesis framework. Economic Journal, 120(542), F101-F128. (doi:10.1111/j.1468-0297.2009.02339.x)

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Publisher's URL: http://dx.doi.org/10.1111/j.1468-0297.2009.02339.x

Abstract

We consider an (otherwise standard) New Neoclassical Synthesis theoretical framework that allows a role for money. Money in our model has an informational role which facilitates the estimation of the unobserved shocks that drive potential output and thus the state of the economy. For this purpose we estimate a small-scale sticky price model using Bayesian techniques. Our findings support the view that money has information value. This is reflected in higher precision in terms of unobserved model concepts such as the natural rate of output. Moreover, our results highlight how modelling money demand can provide insights about structural features of the economy that may be important for the design of interest rate rules. Focusing on money also allows for a step towards resolving the price puzzle. Money demand shocks can confound monetary policy shocks to generate a perverse price response in vector autoregressions (VAR).

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Tsoukalas, Professor John
Authors: Arestis, P., Chortareas, G., and Tsoukalas, J.D.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Economic Journal
ISSN:0013-0133
ISSN (Online):1468-0297
Published Online:20 January 2010

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