Solving the price puzzle with an alternative indicator of monetary policy

John W. Keating, Logan Kelly and Victor (Vic) Valcarcel

Economics Letters, 2014, vol. 124, issue 2, 188-194

Abstract: We identify the effects of monetary policy shocks on macroeconomic variables in VARs using the Divisia M4 measure of money as the policy indicator variable. We obtain theoretically sensible responses—whether or not a commodity price index is included. Thus, we eliminate the well-known empirical puzzles from the VAR by a novel choice in a policy variable, rather than the usual attachment of an ad hoc variable.

Keywords: Monetary policy shocks; Structural VAR; Divisia (search for similar items in EconPapers)
JEL-codes: E30 E31 E65 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:124:y:2014:i:2:p:188-194

DOI: 10.1016/j.econlet.2014.05.012

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