The Price Puzzle Revisited: Can the Cost Channel Explain a Rise in Inflation after a Monetary Policy Shock?

53 Pages Posted: 5 Jul 2007

See all articles by Steffen Henzel

Steffen Henzel

Ifo Institute for Economic Research

Oliver Hülsewig

Munich University of Applied Sciences; CESifo (Center for Economic Studies and Ifo Institute)

Eric Mayer

University of Würzburg - Institute of Economics and Social Sciences

Timo Wollmershaeuser

Ifo Institute for Economic Research; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: July 2007

Abstract

This paper explores whether the cost channel solves the price puzzle. We set-up a New Keynesian DSGE model and estimate it for the euro area by adopting a minimum distance approach. Our findings suggest that - under certain parameter restrictions which are not rejected by the data - the cost channel helps to generate an initial rise of inflation after a monetary contraction.

Keywords: price puzzle, New Keynesian model, cost channel, minimum distance estimation

JEL Classification: C51, E31, E32

Suggested Citation

Henzel, Steffen and Hülsewig, Oliver and Mayer, Eric and Wollmershaeuser, Timo, The Price Puzzle Revisited: Can the Cost Channel Explain a Rise in Inflation after a Monetary Policy Shock? (July 2007). CESifo Working Paper Series No. 2039, Available at SSRN: https://ssrn.com/abstract=998228 or http://dx.doi.org/10.2139/ssrn.998228

Steffen Henzel

Ifo Institute for Economic Research ( email )

Poschingerstr. 5
Munich
Germany

Oliver Hülsewig

Munich University of Applied Sciences ( email )

Munich
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Eric Mayer

University of Würzburg - Institute of Economics and Social Sciences ( email )

Sanderring 2
Wuerzburg, 97070
Germany

Timo Wollmershaeuser (Contact Author)

Ifo Institute for Economic Research ( email )

Poschingerstrasse 5
Munich, 81879
Germany
+49 89 9224 1406 (Phone)
+49 89 9224 1462 (Fax)

HOME PAGE: http://www.ifo.de/link/wollmershaeuser_t.htm

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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