Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/209909 
Year of Publication: 
2008
Series/Report no.: 
Working Paper No. 2008/18
Publisher: 
Norges Bank, Oslo
Abstract: 
We argue that the correct identification of monetary policy shocks in a vector autoregression requires that the identification scheme distinguishes between permanent and transitory monetary policy shocks. The permanent shocks reflect changes in the inflation target while the transitory shocks represent temporary deviations from the interest rate reaction function. Whereas both shocks may raise the nominal interest rate on impact, the inflation and output responses of the two shocks are different. We show, using a simple simulation experiment, that a failure to distinguish between the two types of shocks can result in a "price puzzle".
Subjects: 
VAR modeling
monetary policy shocks
identification
price puzzle
JEL: 
E47
E52
E61
Persistent Identifier of the first edition: 
ISBN: 
978-82-7553-462-8
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size





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