Estimating the Evolution of Money’s Role in the U.S. Monetary Business Cycle
Article first published online: 27 JAN 2012
© 2012 The Ohio State University
Journal of Money, Credit and Banking
Volume 44, Issue 1, pages 23–52, February 2012
How to Cite
CASTELNUOVO, E. (2012), Estimating the Evolution of Money’s Role in the U.S. Monetary Business Cycle. Journal of Money, Credit and Banking, 44: 23–52. doi: 10.1111/j.1538-4616.2011.00468.x
- Issue published online: 27 JAN 2012
- Article first published online: 27 JAN 2012
- Received July 22, 2010; and accepted in revised form August 16, 2011.
Vol. 44, Issue 4, 751–755, Article first published online: 22 MAY 2012
- money in New Keynesian frameworks;
- time-varying effects;
- Bayesian structural estimations;
- Taylor rules
We assess money’s role in the post-WWII U.S. business cycle by employing both fixed-coefficient and rolling-window Bayesian estimations of a structural model of the business cycle with money. Our empirical evidence favors a specification with drifting parameters for money-consumption nonseparability and the Federal Reserve’s reaction to nominal money growth. The role of money is estimated to have been important during the 1970s and declined afterward. The omission of money produces severely distorted impulse response functions (relative to the model with money). Money is found to be important in replicating the U.S. output volatility during the Great Inflation.