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The price puzzle revisited: Can the cost channel explain a rise in inflation after a monetary policy shock?

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  • Henzel, Steffen
  • Hülsewig, Oliver
  • Mayer, Eric
  • Wollmershäuser, Timo

Abstract

This paper explores whether the cost channel solves the price puzzle. We set-up a New Keynesian DSGE model and estimate it for the euro area by adopting a minimum distance approach. Our findings suggest that - under certain parameter restrictions which are not rejected by the data - the cost channel helps to generate an initial rise of inflation after a monetary contraction.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 31 (2009)
Issue (Month): 2 (June)
Pages: 268-289

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Handle: RePEc:eee:jmacro:v:31:y:2009:i:2:p:268-289

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Web page: http://www.elsevier.com/locate/inca/622617

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Keywords: Price puzzle New Keynesian model Cost channel Minimum distance estimation;

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