Still puzzling: evaluating the price puzzle in an empirically identified structural vector autoregression
- First Online:
- Cite this article as:
- Demiralp, S., Hoover, K.D. & Perez, S.J. Empir Econ (2014) 46: 701. doi:10.1007/s00181-013-0694-5
- 279 Downloads
The price puzzle, an increase in the price level associated with a contractionary monetary shock, is investigated in a rich, 12-variable SVAR in which various factors that have been mooted as solutions are considered jointly. SVARs for the pre-1980 and post-1990 periods are identified empirically using a graph-theoretic causal search algorithm combined with formal tests of the implied overidentifying restrictions. In this SVAR, the pre-1980 price puzzle depends on the characterization of monetary policy, and the post-1990 price puzzle is statistically insignificant. Commonly suggested theoretical resolutions to the price puzzle are shown to have causal implications inconsistent with the data.