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

  • Steffen Henzel
  • Oliver Hülsewig
  • Eric Mayer
  • Timo Wollmershäuser

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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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2007/wp-cesifo-2007-07/cesifo1_wp2039.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2039.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_2039
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