Mayer, Eric Hülsewig, Oliver Henzel, Steffen Wollmershäuser, Timo
Year of Publication:
W.E.P. - Würzburg Economic Papers 74
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.
Price puzzle New Keynesian model cost channel minimum distance estimation