An important recent advance in macroeconomics is the development of dynamic stochastic general equilibrium (DSGE) macromodels. The use of DSGE models to study monetary policy, however, has led to paradoxical and puzzling results on a number of central monetary issues including price determinacy and liquidity effects. In Money, Interest, and Policy, Jean-Pascal Benassy argues that moving from the standard DSGE models - which he calls "Ricardian" because they have the famous "Ricardian equivalence" property-to another, "non-Ricardian" model would resolve many of these issues. A Ricardian model represents a household as a homogeneous family of infinitely lived individuals, and Benassy demonstrates that a single modification-the assumption that new agents are born over time (which makes the model non-Ricardian)-can bridge the current gap between monetary intuitions and facts, on one hand, and rigorous modeling, on the other. After comparing Ricardian and non-Ricardian models, Benassy introduces a model that synthesizes the two approaches, incorporating both infinite lives and the birth of new agents. Using this model, he considers a number of issues in monetary policy, including liquidity effects, interest rate rules and price determinacy, global determinacy, the Taylor principle, and the fiscal theory of the price level. Finally, using a simple overlapping generations model, he analyzes optimal monetary and fiscal policies, with a special emphasis on optimal interest rate rules

This paper develops a structural macroeconometric model of the world economy, disaggregated into forty national economies, to facilitate multilaterally consistent macrofinancial policy, risk and spillover analysis. This panel dynamic stochastic general equilibrium model features a range of nominal and real rigidities, extensive macrofinancial linkages, and diverse spillover transmission channels. These macrofinancial linkages encompass bank and capital market based financial intermediation, with financial accelerator mechanisms linked to the values of the housing and physical capital stocks. A variety of monetary policy analysis, fiscal policy analysis, macroprudential policy analysis, spillover analysis, and forecasting applications of the estimated model are demonstrated. These include quantifying the monetary, fiscal and macroprudential transmission mechanisms, accounting for business cycle fluctuations, and generating relatively accurate forecasts of inflation and output growth.

This book features tutorials about the role of money and bonds in Dynamic General Equilibrium models. It includes a step-by-step guide to the endogenous derivation of the price kernel employed for the term structure of interest rates and asset pricing.

Dynamic factor models and dynamic stochastic general equilibrium (DSGE) models are widely used for empirical research in macroeconomics. The empirical factor literature argues that the co-movement of large panels of macroeconomic and financial data can be captured by relatively few common unobserved factors. Similarly, the dynamics in DSGE models are often governed by a handful of state variables and exogenous processes such as preference and/or technology shocks. Boivin and Giannoni(2006) combine a DSGE and a factor model into a data-rich DSGE model, in which DSGE states are factors and factor dynamics are subject to DSGE model implied restrictions. We compare a data-richDSGE model with a standard New Keynesian core to an empirical dynamic factor model by estimating both on a rich panel of U.S. macroeconomic and financial data compiled by Stock and Watson (2008).We find that the spaces spanned by the empirical factors and by the data-rich DSGE model states are very close. This proximity allows us to propagate monetary policy and technology innovations in an otherwise non-structural dynamic factor model to obtain predictions for many more series than just a handful of traditional macro variables, including measures of real activity, price indices, labor market indicators, interest rate spreads, money and credit stocks, and exchange rates.

This dissertation consists of two essays on maximum likelihood estimation of Dynamic Stochastic General Equilibrium (DSGE) models. The first essay focuses on a monetary DSGE model of term structure, while the second essay explores and compares three different versions of New Keynesian DSGE models. In Chapter 1, a general background is given for the DSGE models, and their estimation techniques along with a review of the term structure models and New Keynesian models. The first essay, which is a joint work with Hwagyun Kim, empirically evaluates the relationships between money, inflation, output growth, and the interest rates of different maturities using a monetary DSGE model of term structure, featuring inflation targeting behavior, asset market segmentation, and external habit extended for nominal economy. This model can generate liquidity effect, average upward sloping yield curve, and time-varying bond risk premia for bearing inflation and real shocks. By exploiting the term structure equations derived from the model, the deep parameters of the model describing risk preference, inflation targeting behavior, and market segmentation between bond traders and non-traders are estimated. The model is estimated under alternative specifications: latent factors; macroeconomic factors; and both latent and macroeconomic factors. The empirical findings show that all the methods give consistent estimates of the parameters, and conclude that asset market segmentation, inflation targeting, and time-varying risk aversion are significant to account for the term structure dynamics. They also suggest that monetary factors and monetary policy are important to understand both short-run and long-run behaviors of bond prices. In the second essay, three different versions of New Keynesian DSGE models are developed, and their structural parameters are estimated by maximum likelihood estimation. Specifically, the role of velocity of money on the dynamics of real variables is empirically examined by constructing a money in the utility model and two special cases of transactions cost model. Wealth effects, previously ignored in many transactions cost models, are taken into consideration in one of the cases examined here, and comparisons are made between the transactions cost model that includes the wealth effects and the transactions cost model that ignores the wealth effects entirely. The equivalence of money in the utility model and transactions cost model with wealth effects is also quantitatively examined. The results show that there is no evidence of quantitative equivalence between these two models. Although the magnitude of impulse responses are different among the models studied here, all three models give consistent estimates for the structural parameters. The empirical findings from the maximum likelihood estimates of all three models' parameters also suggest that the velocity of money is a very important part of the IS and Phillips curves of all three models developed here, and should be included in IS and Phillips curves when examining the inflation and output dynamics.

In this collection of 17 articles, top scholars synthesize and analyze scholarship on this widely used tool of policy analysis, setting forth its accomplishments, difficulties, and means of implementation. Though CGE modeling does not play a prominent role in top US graduate schools, it is employed universally in the development of economic policy. This collection is particularly important because it presents a history of modeling applications and examines competing points of view. - Presents coherent summaries of CGE theories that inform major model types - Covers the construction of CGE databases, model solving, and computer-assisted interpretation of results - Shows how CGE modeling has made a contribution to economic policy