Banking and the role of money in the business cycle

► This paper investigates the importance on money aggregates in a DSGE model with a simple banking sector. ► The theoretical framework comprises a forward-looking IS and Phillips curves, a money demand relationship, and a Taylor rule. ► The presence of a banking sector appends an additional term to the IS and money demand curves. ► Maximum likelihood estimation reveals that money balances play a significant role. ► The responses of the model's variables to shocks remain qualitatively similar to a model without money.