DP8107 Does money matter in shaping domestic business cycles? An international investigation

Author(s): Fabio Canova, Tobias Menz
Publication Date: November 2010
Keyword(s): business cycles, inflation dynamics, Money, shock transmission
JEL(s): E31, E32, E52
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8107

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.