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Mayer, Eric; Hülsewig, Oliver; Henzel, Steffen; Wollmershäuser, Timo (2006): The Price Puzzle Revisited: Can the Cost Channel explain a Rise in Inflation after a Monetary Shock? Würzburg economic papers, 74
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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.