The Price Puzzle: Fact or Artefact?

Philip Arestis, Michail Karoglou () and Kostas Mouratidis
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Michail Karoglou: Aston Business School, Aston University

No 2013008, Working Papers from The University of Sheffield, Department of Economics

Abstract: A conventional finding of recursive structural VAR (SVAR) analyses is the price puzzle namely the positive relationship between interest rates and inflation. We employ a Markov regime-switching structural VAR (MRS-SVAR) to investigate whether the price puzzle is present at regimes where there is violation of the Taylor principle. Our results suggest that the price puzzle is a regime-dependent phenomenon driven by passive monetary policy and Choleski identifying restrictions.

Keywords: monetary policy; price puzzle; Markov regime-switching; structural VAR (search for similar items in EconPapers)
JEL-codes: C32 C34 C51 E50 E52 E58 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2013
New Economics Papers: this item is included in nep-mon and nep-pke
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