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Published online by Cambridge University Press:  16 March 2016

Jonathan Benchimol*
Bank of Israel and EABCN
André Fourçans
ESSEC Business School and THEMA
Address correspondence to: Jonathan Benchimol, Bank of Israel, POB 780, 91007 Jerusalem, Israel; e-mail:
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This paper analyzes the role of money and monetary policy as well as the forecasting performance of New Keynesian dynamic stochastic general equilibrium models with and without separability between consumption and money. The study is conducted over three crisis periods in the Eurozone, namely, the ERM crisis, the dot-com crisis, and the global financial crisis (GFC). The results of successive Bayesian estimations demonstrate that during these crises, the nonseparable model generally provides better out-of-sample output forecasts than the baseline model. We also demonstrate that money shocks have some impact on output variations during crises, especially in the case of the GFC. Furthermore, the response of output to a money shock is more persistent during the GFC than during the other crises. The impact of monetary policy also changes during crises. Insofar as the GFC is concerned, this impact increases at the beginning of the crisis, but decreases sharply thereafter.

Copyright © Cambridge University Press 2016 


This paper does not necessarily reflect the views of the Bank of Israel. We thank two anonymous referees for their helpful and constructive comments.



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