Modeling Money

46 Pages Posted: 24 Jul 2000

See all articles by Lawrence J. Christiano

Lawrence J. Christiano

Northwestern University; Federal Reserve Bank of Cleveland; Federal Reserve Bank of Chicago; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER)

Martin Eichenbaum

Northwestern University; National Bureau of Economic Research (NBER)

Charles L. Evans

Federal Reserve Bank of Chicago - Research Department

Date Written: January 1998

Abstract

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.

Suggested Citation

Christiano, Lawrence J. and Eichenbaum, Martin and Evans, Charles L., Modeling Money (January 1998). NBER Working Paper No. w6371. Available at SSRN: https://ssrn.com/abstract=226120

Lawrence J. Christiano (Contact Author)

Northwestern University ( email )

2003 Sheridan Road
Evanston, IL 60208
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847-491-8231 (Phone)
847-491-7001 (Fax)

Federal Reserve Bank of Cleveland

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Federal Reserve Bank of Chicago

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Federal Reserve Bank of Minneapolis

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National Bureau of Economic Research (NBER)

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Martin Eichenbaum

Northwestern University ( email )

2003 Sheridan Road
Evanston, IL 60208
United States
847-491-8232 (Phone)
847-491-7001 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Charles L. Evans

Federal Reserve Bank of Chicago - Research Department ( email )

230 South LaSalle Street
P.O. Box 834
Chicago, IL 60604-1413
United States
312-322-5812 (Phone)
312-322-2357 (Fax)

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