The Price Puzzle and the Hysteresis Hypothesis: SVEC Analysis for the US Economy

Matteo Deleidi and Enrico Levrero

Review of Political Economy, 2020, vol. 32, issue 1, 22-29

Abstract: This paper shows that monetary policy tightening may lead to an increase in the level of prices. To demonstrate this, we apply SVEC modelling to US monthly data for the 1959–2018 period and endorse the ‘hysteresis hypothesis’ which assumes that monetary policy produces long-lasting effects on unemployment and prices. Contrary to what has been argued by Hanson (2004. ‘The “Price Puzzle” Reconsidered.’ Journal of Monetary Economics 51 (7): 1385–1413) and Castelnuovo and Surico (2010. ‘Monetary Policy, Inflation Expectations and the Price Puzzle.’ The Economic Journal 120 (549): 1262–1283), the phenomenon known as the ‘price puzzle’ or ‘Gibson paradox’ is confirmed both in the pre-1979 and post-1982 periods, showing that the paradox is independent of the active/passive behaviour of the Central Bank. Our findings detect a cost channel of monetary policy demonstrating that a change in the interest rates by monetary authorities may have an effect on income distribution.

Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1080/09538259.2020.1759244 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:revpoe:v:32:y:2020:i:1:p:22-29

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/CRPE20

DOI: 10.1080/09538259.2020.1759244

Access Statistics for this article

Review of Political Economy is currently edited by Steve Pressman and Louis-Philippe Rochon

More articles in Review of Political Economy from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().