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The Price Puzzle Revisited : Can the Cost Channel explain a Rise in Inflation after a Monetary Shock?

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

Paper provided by University of Würzburg, Chair for Monetary Policy and International Economics in its series W.E.P. - Würzburg Economic Papers with number 74.

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Date of creation: 2006
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Handle: RePEc:zbw:wuewep:74

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Keywords: Price puzzle; New Keynesian model; cost channel; minimum distance estimation;

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