The 'price puzzle', once more

Jerome Creel

Applied Economics Letters, 2006, vol. 13, issue 3, 183-187

Abstract: The VAR monetary literature has long exhibited a 'price puzzle': after a positive innovation on the policy interest rate, the price level tends to increase rather than to decrease. This paper shows that introducing fiscal data (primary surplus and net debt) proves fruitful in a VAR model also featuring the output gap, the inflation rate and the nominal short-term interest rate: the 'price puzzle' vanishes.

Date: 2006
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Working Paper: The 'Price Puzzle', once more (2006)
Working Paper: The 'Price Puzzle', once more (2006)
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DOI: 10.1080/13504850500392867

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