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Does Inflation Adjust Faster to Aggregate Technology Shocks than to Monetary Policy Shocks?

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  • LUIGI PACIELLO

Abstract

This paper studies U.S. inflation adjustment speed to aggregate technology shocks and to monetary policy shocks in a medium size Bayesian VAR model. According to the model estimated on the 1959-2007 sample, inflation adjusts much faster to aggregate technology shocks than to monetary policy shocks. These results are robust to different identification assumptions and measures of aggregate prices. However, by separately estimating the model over the pre- and post-1980 periods, this paper further shows that inflation adjusts much faster to technology shocks than to monetary policy shocks in the post-1980 period, but not in the pre-1980 period.

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File URL: http://hdl.handle.net/10.1111/j.1538-4616.2011.00462.x
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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 43 (2011)
Issue (Month): 8 (December)
Pages: 1663-1684

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Handle: RePEc:mcb:jmoncb:v:43:y:2011:i:8:p:1663-1684

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. Maćkowiak, Bartosz & Wiederholt, Mirko, 2011. "Business cycle dynamics under rational inattention," Working Paper Series 1331, European Central Bank.
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  7. Juan F. Rubio-Ramírez & Daniel F.Waggoner & Tao Zha, 2008. "Structural vector autoregressions: theory of identification and algorithms for inference," Working Paper 2008-18, Federal Reserve Bank of Atlanta.
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  12. Luigi Paciello, 2012. "Monetary Policy and Price Responsiveness to Aggregate Shocks under Rational Inattention," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(7), pages 1375-1399, October.
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  14. Christine De Mol & Domenico Giannone & Lucrezia Reichlin, 2008. "Forecasting using a large number of predictors: is Bayesian shrinkage a valid alternative to principal components?," ULB Institutional Repository 2013/6411, ULB -- Universite Libre de Bruxelles.
  15. Frank Smets & Raf Wouters, 2007. "Shocks and Frictions in US Business Cycles : a Bayesian DSGE Approach," Working Paper Research 109, National Bank of Belgium.
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Cited by:
  1. Sergey Slobodyan & Raf Wouters, 2009. "Learning in an Estimated Medium-Scale DSGE Model," CERGE-EI Working Papers wp396, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  2. Jouchi Nakajima & Nao Sudo & Takayuki Tsuruga, 2010. "How Well Do the Sticky Price Models Explain the Disaggregated Price Responses to Aggregate Technology and Monetary Policy Shocks?," Discussion papers e-10-007, Graduate School of Economics Project Center, Kyoto University.
  3. Lawrence J. Christiano & Martin S. Eichenbaum & Mathias Trabandt, 2013. "Unemployment and Business Cycles," NBER Working Papers 19265, National Bureau of Economic Research, Inc.
  4. Christiano, Lawrence & Trabandt, Mathias & Walentin, Karl, 2010. "Involuntary unemployment and the business cycle," Working Paper Series 1202, European Central Bank.
  5. Paciello, Luigi, 2009. "Monetary Policy Activism and Price Responsiveness to Aggregate Shocks under Rational Inattention," MPRA Paper 16407, University Library of Munich, Germany.

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