MONEY, NEW-KEYNESIAN MACROECONOMICS AND THE BUSINESS-CYCLE

We show in this paper that the typical modern business cycle cannot be reduced to the real business cycles archetype. A monopolistic competition model with price adjustment costs, affected by technological and monetary shocks, better mimics the economic fluctuations in two countries with very different cyclical properties, namely France and the United States. In our model, monetary shocks are necessary to reproduce the standard deviation of output, the money-output correlation, the labour productivity-worked hours relative standard deviation, the labour productivity-worked hours correlation and the mark-up-output correlation. With two independent shocks, one real, more specifically defined than the Solow residual, and one nominal, the model gives an answer to some empirical puzzles, which were left unexplained by traditional RBC models.