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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)

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.

Suggested Citation

  • Giordani Paolo, 2003. "On Modeling the Effects of Inflation Shocks: Comments and Some Further Evidence," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-15, January.
    • Handle: RePEc:bpj:bejmac:v:contributions.3:y:2003:i:1:n:1
    DOI: 10.2202/1534-6005.1068
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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. Paolo Giordani, 2004. "Evaluating New‐Keynesian Models of a Small Open Economy," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(s1), pages 713-733, September.
    3. Gaffeo, Edoardo & Canzian, Giulia, 2011. "The psychology of inflation, monetary policy and macroeconomic instability," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(5), pages 660-670.
    4. Barbara Annicchiarico & Alessandro Piergallini, 2006. "Inflation shocks and interest rate rules," Economics Bulletin, AccessEcon, vol. 5(19), pages 1-7.
    5. repec:ebl:ecbull:v:5:y:2006:i:19:p:1-7 is not listed on IDEAS
    6. Mr. Shaun K. Roache & Alexander P. Attie, 2009. "Inflation Hedging for Long-Term Investors," IMF Working Papers 2009/090, International Monetary Fund.

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