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Nominal anchors and the price puzzle

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  • Florio, Anna

Abstract

Looking at the pre-Great Recession period, employing a VAR analysis, we compare the behavior of prices after a monetary policy shock in countries with clearly defined nominal anchors (Australia, Canada, New Zealand, Sweden, Switzerland, United Kingdom and EMU) with their behavior in countries that, at that time, did not possess any such anchor (Japan and United States). While for this last group we find evidence of a price puzzle (i.e. the positive response of prices to a negative monetary policy shock), in the first, once this anchor was set, we do not detect such a perverse dynamic. We argue that in those countries, characterised by clearly defined nominal anchors, the central bank manages to anchor inflation expectations thus ruling out the persistent increase in the price level.

Suggested Citation

  • Florio, Anna, 2018. "Nominal anchors and the price puzzle," Journal of Macroeconomics, Elsevier, vol. 58(C), pages 224-237.
    • Handle: RePEc:eee:jmacro:v:58:y:2018:i:c:p:224-237
    DOI: 10.1016/j.jmacro.2018.09.004
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    Cited by:

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    2. Benjamin Beckers, 2020. "Credit Spreads, Monetary Policy and the Price Puzzle," RBA Research Discussion Papers rdp2020-01, Reserve Bank of Australia.
    3. Javier Sánchez García & Salvador Cruz Rambaud, 2022. "Machine Learning Regularization Methods in High-Dimensional Monetary and Financial VARs," Mathematics, MDPI, vol. 10(6), pages 1-15, March.
    4. Ida, Daisuke, 2024. "Household heterogeneity and the price puzzle in a new Keynesian model," Journal of Macroeconomics, Elsevier, vol. 79(C).
    5. Ida, Daisuke & Kaminoyama, Kenichi, 2025. "Effect of a cost channel on monetary policy transmission in a behavioral new Keynesian model," Macroeconomic Dynamics, Cambridge University Press, vol. 29, pages 1-1, January.
    6. Ida, Daisuke, 2024. "The neo-Fisherian effect in a new Keynesian model with real money balances," MPRA Paper 120575, University Library of Munich, Germany.
    7. Ida, Daisuke, 2023. "Cost channel, determinacy, and monetary policy in a two-country new Keynesian model," Economic Modelling, Elsevier, vol. 119(C).
    8. Shi, Jiping, 2025. "News Uncertainty and Signaling Effects of Monetary Policy," Warwick-Monash Economics Student Papers 81, Warwick Monash Economics Student Papers.

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