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- Title
THE PRICE PUZZLE AND VAR IDENTIFICATION.
- Authors
Estrella, Arturo
- Abstract
In structural VARs, unexpected monetary tightening often leads to the price puzzle, a counterintuitive increase in inflation in the impulse response function. The identification of impulse responses requires at least a minimal set of structural assumptions, and models exhibiting the price puzzle typically use standard assumptions focusing mainly on relationships among contemporaneous disturbances. This note uses a well-established stylized fact, the long lags of monetary policy, to motivate a simple additional identifying assumption. The assumption eliminates a single term in one equation of the reduced form, and with it the price puzzle.
- Subjects
MONETARY policy; VALUE-added resellers; PRICE inflation; VECTOR autoregression model; IMPULSE response
- Publication
Macroeconomic Dynamics, 2015, Vol 19, Issue 8, p1880
- ISSN
1365-1005
- Publication type
Article
- DOI
10.1017/S1365100514000200