Monetary policy identification scheme crucial for economic stability, study finds.
The article explores how different ways of identifying monetary policy shocks affect the results in a DSGE model. By comparing models where interest rates are fixed or determined alongside money, researchers found that including real balance effects is crucial for capturing high persistence. They also discovered that the identification method significantly influences the estimated monetary policy rule. This indicates that how money is incorporated into the identification process can impact the accuracy of DSGE model estimations.