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Does Inflation Adjust Faster to Aggregate Technology Shocks than to Monetary Policy Shocks?

  • Luigi Paciello

    (EIEF)

This paper studies U.S. inflation adjustment speed to aggregate technology shocks and to monetary policy shocks in a medium size Bayesian VAR model. According to the model estimated on the 1959-2007 sample, inflation adjusts much faster to aggregate technology shocks than to monetary policy shocks. These results are robust to different identification assumptions and measures of aggregate prices. However, by separately estimating the model over the pre- and post-1980 periods, this paper further shows that inflation adjusts much faster to technology shocks than to monetary policy shocks in the post-1980 period, but not in the pre-1980 period.

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File URL: http://www.eief.it/files/2012/09/wp-17-does-inflation-adjust-faster-to-aggregate-technology-shocks-than-to-monetary-policy-shocks.pdf
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Paper provided by Einaudi Institute for Economics and Finance (EIEF) in its series EIEF Working Papers Series with number 0917.

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Length: 31 pages
Date of creation: 2009
Date of revision: Apr 2011
Handle: RePEc:eie:wpaper:0917
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  1. Juan F. Rubio-Ramirez & Daniel Waggoner & Tao Zha, 2006. "Markov-Switching Structural Vector Autoregressions: Theory and Application," Computing in Economics and Finance 2006 69, Society for Computational Economics.
  2. Dedola, Luca & Neri, Stefano, 2006. "What does a technology shock do? A VAR analysis with model-based sign restrictions," Working Paper Series 0705, European Central Bank.
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  11. Luigi Paciello, 2012. "Monetary Policy and Price Responsiveness to Aggregate Shocks under Rational Inattention," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(7), pages 1375-1399, October.
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  16. Juan F. Rubio-Ramírez & Daniel F.Waggoner & Tao Zha, 2008. "Structural vector autoregressions: theory of identification and algorithms for inference," Working Paper 2008-18, Federal Reserve Bank of Atlanta.
  17. Dupor, Bill & Han, Jing & Tsai, Yi-Chan, 2009. "What do technology shocks tell us about the New Keynesian paradigm?," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 560-569, May.
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