Henzel, Steffen; Hülsewig, Oliver; Mayer, Eric
The price puzzle revisited: Can the cost channel explain a rise in inflation after a monetary policy shock?
In: Journal of Macroeconomics, Vol. 31, No. 2: pp. 268-289
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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.