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On Modeling the Effects of Inflation Shocks: Comments and Some Further Evidence

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  • Giordani Paolo

    () (Stockholm School of Economics)

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    Abstract

    Fair (2002) argues that New Keynesian models are wrong in predicting that an inflation shock has contractionary effects only if it raises the real interest rate, and that a coefficient on inflation higher than one in the Taylor rule is a necessary condition for stability. While Fair uses his macroeconometric model as a benchmark to evaluate the predictions of the standard New Keynesian framework, we adopt a VAR supported by models in that framework, and the model of Rudebusch and Svensson (1999). The findings are broadly in line with Fair's.

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    Bibliographic Info

    Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

    Volume (Year): 3 (2003)
    Issue (Month): 1 (January)
    Pages: 1-15

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    Handle: RePEc:bpj:bejmac:v:contributions.3:y:2003:i:1:n:1

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    Web page: http://www.degruyter.com

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    Web: http://www.degruyter.com/view/j/bejm

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    Cited by:
    1. Hillinger, Claude & Süssmuth, Bernd, 2008. "The Quantity Theory of Money is Valid. The New Keynesians are Wrong!," Discussion Papers in Economics 6987, University of Munich, Department of Economics.
    2. Barbara Annicchiarico & Alessandro Piergallini, 2006. "Inflation shocks and interest rate rules," Economics Bulletin, AccessEcon, vol. 5(19), pages 1-7.
    3. Shaun K. Roache & Alexander P. Attie, 2009. "Inflation Hedging for Long-Term Investors," IMF Working Papers 09/90, International Monetary Fund.

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