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

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Abstract

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

Suggested Citation

  • Selva Demiralp & Kevin Hoover & Stephen Perez, 2014. "Still puzzling: evaluating the price puzzle in an empirically identified structural vector autoregression," Empirical Economics, Springer, vol. 46(2), pages 701-731, March.
  • Handle: RePEc:spr:empeco:v:46:y:2014:i:2:p:701-731
    DOI: 10.1007/s00181-013-0694-5
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    References listed on IDEAS

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    Cited by:

    1. Piyachart Phiromswad & Takeshi Yagihashi, 2016. "Empirical identification of factor models," Empirical Economics, Springer, vol. 51(2), pages 621-658, September.
    2. Xu, Bin & Lin, Boqiang, 2016. "Assessing CO2 emissions in China’s iron and steel industry: A dynamic vector autoregression model," Applied Energy, Elsevier, vol. 161(C), pages 375-386.
    3. Phiromswad, Piyachart, 2015. "Measuring monetary policy with empirically grounded restrictions: An application to Thailand," Journal of Asian Economics, Elsevier, vol. 38(C), pages 104-113.
    4. Nikolay Arefiev, 2016. "Graphical Interpretations of Rank Conditions For Identification of Linear Gaussian Models," HSE Working papers WP BRP 124/EC/2016, National Research University Higher School of Economics.
    5. Wongboonsin, Kua & Phiromswad, Piyachart, 2017. "Searching for empirical linkages between demographic structure and economic growth," Economic Modelling, Elsevier, vol. 60(C), pages 364-379.
    6. Pedro Garcia Duarte & Kevin D. Hoover, 2012. "Observing Shocks," History of Political Economy, Duke University Press, vol. 44(5), pages 226-249, Supplemen.
    7. repec:bpj:sndecm:v:21:y:2017:i:4:p:18:n:1 is not listed on IDEAS

    More about this item

    Keywords

    Price puzzle; Monetary policy; Graph theory; Causal search; Output gap; Transmission mechanism; C32; C51; E32; E44; E51;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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