How to Solve the Price Puzzle? A Meta-Analysis
CERGE-EI Working Paper No. 446
42 Pages Posted: 12 Oct 2011
Date Written: September 1, 2011
Abstract
The short-run increase in prices following an unexpected tightening of monetary policy represents a frequently reported puzzle. Yet the puzzle is easy to explain away when all published models are quantitatively reviewed. We collect and examine about 1,000 point estimates of impulse responses from 70 articles using vector autoregressive models to study monetary transmission in various countries. We find some evidence of publication selection against the price puzzle in the literature, but our results also suggest that the reported puzzle is mostly caused by model misspecifications. Finally, the long-run response of prices to monetary policy shocks depends on the characteristics of the economy.
Keywords: Monetary policy transmission, Price puzzle, Meta-analysis, Publication selection bias
JEL Classification: C83, E52
Suggested Citation: Suggested Citation