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The price puzzle revisited

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  • Chulho Jung
  • Jay E. Ryu

Abstract

This paper addresses the price puzzle that contractionary monetary policy increased inflation rates between 2000 and 2014 in the U.S. Previous studies tried to explain the puzzle, but we analyze it from a unique angle by tracing the credit generated by the Fed. Our findings show that the increased federal credit did not flow into business investment. Instead, U.S. financial institutions invested it in risky but profitable financial derivatives. The missing link between federal credit and business investment explains the price puzzle.

Suggested Citation

  • Chulho Jung & Jay E. Ryu, 2020. "The price puzzle revisited," Applied Economics Letters, Taylor & Francis Journals, vol. 27(6), pages 441-446, March.
    • Handle: RePEc:taf:apeclt:v:27:y:2020:i:6:p:441-446
    DOI: 10.1080/13504851.2019.1630705
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    Cited by:

    1. Marek A. Dąbrowski & Dimas Mukhlas Widiantoro, 2023. "Effectiveness and conduct of macroprudential policy in Indonesia in 2003–2020: Evidence from the structural VAR models," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 13(3), pages 703-731, December.
    2. Vadim Napalkov & Anna Novak & Andrey Shulgin, 2021. "Variations in the Effects of a Single Monetary Policy: The Case of Russian Regions," Russian Journal of Money and Finance, Bank of Russia, vol. 80(1), pages 3-45, March.

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