Get access

Does Money Matter in Shaping Domestic Business Cycles? An International Investigation


  • We thank Masao Ogaki (the editor), two anonymous referees, Peter Ireland, Andrew Levin, Takeo Hoshi, Jordi Gali, the participants of the TRIO 2008 conference and of several seminars for comments and suggestion, and Paolo Surico and Matteo Ciccarelli for helping us with the collection of the data. The financial support of the Spanish Ministry of Education through the grants SEJ2006-02235 and ECO2009-08556 and of the Barcelona Graduate School of Economics is gratefully acknowledged.


We study the contribution of money to business-cycle fluctuations in the United States, the United Kingdom, 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.