On Modeling the Effects of Inflation Shocks: Comments and Some Further Evidence

Paolo Giordani
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Paolo Giordani: Stockholm School of Economics

The B.E. Journal of Macroeconomics, 2003, vol. contributions.3, issue 1

Abstract: Fair (2002) argues that New Keynesian models are wrong in predicting that an inflation shock has contractionary effects only if it raises the real interest rate, and that a coefficient on inflation higher than one in the Taylor rule is a necessary condition for stability. While Fair uses his macroeconometric model as a benchmark to evaluate the predictions of the standard New Keynesian framework, we adopt a VAR supported by models in that framework, and the model of Rudebusch and Svensson (1999). The findings are broadly in line with Fair's.

Keywords: inflation shocks; VAR; New Keynesian models (search for similar items in EconPapers)
JEL-codes: E30 E40 E58 (search for similar items in EconPapers)
Date: 2003
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