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Still puzzling: evaluating the price puzzle in an empirically identified structural vector autoregression

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The price puzzle, an increase in the price level associated with a contractionary monetary shock, is investigated in a rich, 12-variable SVAR in which various factors that have been mooted as solutions are considered jointly. SVARs for the pre-1980 and post-1990 periods are identified empirically using a graph-theoretic causal search algorithm combined with formal tests of the implied overidentifying restrictions. In this SVAR, the pre-1980 price puzzle depends on the characterization of monetary policy, and the post-1990 price puzzle is statistically insignificant. Commonly suggested theoretical resolutions to the price puzzle are shown to have causal implications inconsistent with the data. Copyright Springer-Verlag Berlin Heidelberg 2014

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File URL: http://hdl.handle.net/10.1007/s00181-013-0694-5
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Article provided by Springer in its journal Empirical Economics.

Volume (Year): 46 (2014)
Issue (Month): 2 (March)
Pages: 701-731

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Handle: RePEc:spr:empeco:v:46:y:2014:i:2:p:701-731
DOI: 10.1007/s00181-013-0694-5
Contact details of provider: Web page: http://www.springer.com

Order Information: Web: http://www.springer.com/economics/econometrics/journal/181/PS2

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