Still puzzling: evaluating the price puzzle in an empirically identified structural vector autoregression

Selva Demiralp, Kevin Hoover () and Stephen Perez ()
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Stephen Perez: http://www.csus.edu/indiv/p/perezs/

Empirical Economics, 2014, vol. 46, issue 2, 731 pages

Abstract: The price puzzle, an increase in the price level associated with a contractionary monetary shock, is investigated in a rich, 12-variable SVAR in which various factors that have been mooted as solutions are considered jointly. SVARs for the pre-1980 and post-1990 periods are identified empirically using a graph-theoretic causal search algorithm combined with formal tests of the implied overidentifying restrictions. In this SVAR, the pre-1980 price puzzle depends on the characterization of monetary policy, and the post-1990 price puzzle is statistically insignificant. Commonly suggested theoretical resolutions to the price puzzle are shown to have causal implications inconsistent with the data. Copyright Springer-Verlag Berlin Heidelberg 2014

Keywords: Price puzzle; Monetary policy; Graph theory; Causal search; Output gap; Transmission mechanism; C32; C51; E32; E44; E51 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (16)

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DOI: 10.1007/s00181-013-0694-5

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