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The 'Price Puzzle', once more

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  • Jérôme Creel

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

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.

Suggested Citation

  • Jérôme Creel, 2006. "The 'Price Puzzle', once more," SciencePo Working papers Main hal-03416028, HAL.
    • Handle: RePEc:hal:spmain:hal-03416028
    DOI: 10.1080/13504850500392867
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    Cited by:

    1. Par Osterholm, 2008. "A structural Bayesian VAR for model-based fan charts," Applied Economics, Taylor & Francis Journals, vol. 40(12), pages 1557-1569.

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