EconStor >
Stockholm School of Economics >
EFI - The Economic Research Institute, Stockholm School of Economics >
SSE/EFI Working Paper Series in Economics and Finance, EFI - The Economic Research Institute, Stockholm School of Economics >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/56084
  
Title:An alternative explanation of the prize puzzle PDF Logo
Authors:Giordani, Paolo
Issue Date:2001
Series/Report no.:SSE/EFI Working Paper Series in Economics and Finance 414
Abstract:This paper proposes a simple explanation for the frequent appearance of a price puzzle in VARs designed for monetary policy analysis. It suggests that the best method of solving the puzzle implies a close connection between theory and empirics rather than the introduction of a commodity price. It proves that the omission of a measure of output gap (or potential output) spuriously produces a price puzzle (and several other incorrect conclusions) in a wide class of commonly used models. This can happen even if the model admits a triangular identification and if the forecasts produced by the misspecified VAR are optimal. When the model is tested on US data, all predictions are supported.
Subjects:Price puzzle
monetary policy
misspecification
output gap
potential output
technology shocks
VAR
JEL:E30
E52
Document Type:Working Paper
Appears in Collections:SSE/EFI Working Paper Series in Economics and Finance, EFI - The Economic Research Institute, Stockholm School of Economics

Files in This Item:
File Description SizeFormat
333191250.pdf380.52 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/56084

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.