Forward-looking monetary policy and anticipated shocks to inflation
Journal of Macroeconomics, 2011, vol. 33, issue 4, 620-633
This paper extends a standard New Keynesian model to describe the effects of anticipated shocks to inflation and forward-looking monetary policy. Using the data generated from this modified model suggests that overlooking these two factors in the standard Cholesky structural vector autoregressive identification scheme will generate a price puzzle. Furthermore, this paper demonstrates that failing to account for these two factors may result in significant estimates of two other explanations of the price puzzle—the cost channel of transmission of monetary policy and indeterminacy due to violation of the Taylor principle—even though neither features in the data generating process.
Keywords: New Keynesian model; Price puzzle; Cost channel; Indeterminacy; Monetary policy; Anticipated shocks; Forecast-based rules (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:33:y:2011:i:4:p:620-633
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