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Misspecification, Identification or Measurement? Another Look at the Price Puzzle

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  • Shuyun May Li
  • Roshan Perera
  • Kalvinder Shields

Abstract

This paper re-examines the VAR analysis of the price puzzle with regard to the issues of measurement, identification and misspecification. In an empirical analysis conducted for the US economy, we consider alternative measures of economic activity and inflation, alternative assumptions to identify the monetary policy shock and various VAR specifications making use of contemporaneous and forward looking variables. All three issues are found to be important for the resolution of the price puzzle and a robust preferred specification is proposed.

Suggested Citation

  • Shuyun May Li & Roshan Perera & Kalvinder Shields, 2013. "Misspecification, Identification or Measurement? Another Look at the Price Puzzle," Department of Economics - Working Papers Series 1169, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:1169
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    File URL: http://fbe.unimelb.edu.au/__data/assets/pdf_file/0011/796970/1169.pdf
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    References listed on IDEAS

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    1. Links for 05-14-2013
      by Mark Thoma in Economist's View on 2013-05-14 05:03:00

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    Cited by:

    1. Phan, Tuan, 2016. "Has Monetary Policy Become More Aggressive, But Less Effective Over Time?," MPRA Paper 107200, University Library of Munich, Germany.

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    More about this item

    Keywords

    Price puzzle; Monetary policy; Output gap; Expectations;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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