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Open Access Dissertation

Date of Award


Degree Type


Degree Name




First Advisor

Robert J. Rossana


In the last several years, dynamic stochastic general equilibrium (DSGE) models have become the predominant tool of modern macroeconomics and, in particular, monetary policy research. Generally speaking, the basic New Keynesian model is the standard framework for analysis. This framework uses optimizing agents and firms to generate a dynamic, rational expectations model analogous to traditional IS-LM analysis in which the LM curve has been replaced with a monetary policy rule. As a result, the model makes a strong assumption about monetary policy. Namely, the New Keynesian model assumes that the short term interest rate is sufficient to capture the monetary transmission mechanism. Evidence that suggests that monetary aggregates are not useful for analysis of monetary shocks is viewed as prima facia evidence in favor of this view. Nonetheless, there remains cause for skepticism. This dissertation examines the implications of New Keynesian model in two important directions. First, the empirical evidence that examines the role of money relies on the use of simple sum aggregates, which are not consistent with aggregation theory. As a result, the dissertation re-examines previous results using monetary services indexes that are consistent with economic, aggregation, and index number theory. Second, the New Keynesian framework is nested in a model with agency costs and a richer specification of money demand than traditionally used to examine the implications of alternative transmission mechanisms.

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