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

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  • Luigi Paciello

    (EIEF)

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://www.eief.it/files/2012/09/wp-17-does-inflation-adjust-faster-to-aggregate-technology-shocks-than-to-monetary-policy-shocks.pdf
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Bibliographic Info

Paper provided by Einaudi Institute for Economics and Finance (EIEF) in its series EIEF Working Papers Series with number 0917.

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Length: 31 pages
Date of creation: 2009
Date of revision: Apr 2011
Handle: RePEc:eie:wpaper:0917

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  1. Rochelle M. Edge & Thomas Laubach & John C. Williams, 2003. "The responses of wages and prices to technology shocks," Working Paper Series, Federal Reserve Bank of San Francisco 2003-21, Federal Reserve Bank of San Francisco.
  2. Marta Bańbura, 2008. "Large Bayesian VARs," 2008 Meeting Papers 334, Society for Economic Dynamics.
  3. Clarida, R. & Gali, J. & Gertler, M., 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Working Papers, C.V. Starr Center for Applied Economics, New York University 99-13, C.V. Starr Center for Applied Economics, New York University.
  4. Luigi Paciello, 2012. "Monetary Policy and Price Responsiveness to Aggregate Shocks under Rational Inattention," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 44(7), pages 1375-1399, October.
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  7. Timothy Cogley & Giorgio E. Primiceri & Thomas J. Sargent, 2008. "Inflation-Gap Persistence in the U.S," NBER Working Papers 13749, National Bureau of Economic Research, Inc.
  8. James H. Stock & Mark W. Watson, 2003. "Has the Business Cycle Changed and Why?," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 2002, Volume 17, pages 159-230 National Bureau of Economic Research, Inc.
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  10. Dedola, Luca & Neri, Stefano, 2006. "What does a technology shock do? A VAR analysis with model-based sign restrictions," Working Paper Series, European Central Bank 0705, European Central Bank.
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  13. Dupor, Bill & Han, Jing & Tsai, Yi-Chan, 2009. "What do technology shocks tell us about the New Keynesian paradigm?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 56(4), pages 560-569, May.
  14. David Altig & Lawrence Christiano & Martin Eichenbaum & Jesper Linde, 2005. "Firm-Specific Capital, Nominal Rigidities and the Business Cycle," NBER Working Papers 11034, National Bureau of Economic Research, Inc.
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  16. Bartosz Mackowiak & Mirko Wiederholt, 2008. "Business Cycle Dynamics under Rational Inattention," 2008 Meeting Papers 1059, Society for Economic Dynamics.
  17. Fabio Canova & Luca Gambetti & Evi Pappa, 2006. "The structural dynamics of output growth and inflation: some international evidence," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 971, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 2006.
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  20. Daniel F. Waggoner & Tao Zha, 2000. "Likelihood-preserving normalization in multiple equation models," Working Paper, Federal Reserve Bank of Atlanta 2000-8, Federal Reserve Bank of Atlanta.
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Cited by:
  1. Sergey Slobodyan & Raf Wouters, 2009. "Learning in an Estimated Medium-Scale DSGE Model," CERGE-EI Working Papers, The Center for Economic Research and Graduate Education - Economic Institute, Prague wp396, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  2. Paciello, Luigi, 2009. "Monetary Policy Activism and Price Responsiveness to Aggregate Shocks under Rational Inattention," MPRA Paper 16407, University Library of Munich, Germany.
  3. Lawrence J. Christiano & Martin S. Eichenbaum & Mathias Trabandt, 2013. "Unemployment and business cycles," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 1089, Board of Governors of the Federal Reserve System (U.S.).
  4. 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, Graduate School of Economics Project Center, Kyoto University e-10-007, Graduate School of Economics Project Center, Kyoto University.
  5. Lawrence J. Christiano & Mathias Trabandt & Karl Walentin, 2010. "Involuntary Unemployment and the Business Cycle," NBER Working Papers 15801, National Bureau of Economic Research, Inc.

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