Please use this identifier to cite or link to this item: https://hdl.handle.net/20.500.11851/6241
Title: An explanation for the price puzzle: Asymmetric information and expectation dynamics
Authors: Taş, Bedri Kamil Onur
Keywords: Price puzzle
Asymmetric information
VAR models
Monetary policy
Kalman filter
Learning
Issue Date: 2011
Publisher: Louisiana State Univ Pr
Abstract: Using theoretical and empirical analyses, this paper shows that the expectation dynamics induced by information asymmetry between the Central Bank (CB) and the public can cause the price puzzle. The signalling and learning dynamics between the CB and a representative private-sector agent under asymmetric information is investigated. Inflation positively reacts to contractionary monetary policy because the change in the interest rate is perceived as a signal of the CB's private information about higher future inflation and output by the public. The empirical section of the paper validates this theoretical argument using a VAR specification about the US economy. Besides providing an explanation for the price puzzle, the results of this paper has practical implications about transparency and monetary policy. The theoretical and empirical findings indicate that asymmetric information causes significant frictions in the transmission mechanism of monetary policy. These frictions induce short-run undesired effects like increase in expected inflation and actual inflation as a response to contractionary monetary policy which is identified as "the price puzzle". (C) 2010 Elsevier Inc. All rights reserved.
URI: https://doi.org/10.1016/j.jmacro.2010.10.005
https://hdl.handle.net/20.500.11851/6241
ISSN: 0164-0704
Appears in Collections:İktisat Bölümü / Department of Economics
Scopus İndeksli Yayınlar Koleksiyonu / Scopus Indexed Publications Collection
WoS İndeksli Yayınlar Koleksiyonu / WoS Indexed Publications Collection

Show full item record

CORE Recommender

SCOPUSTM   
Citations

3
checked on Sep 23, 2022

WEB OF SCIENCETM
Citations

5
checked on Sep 24, 2022

Page view(s)

40
checked on Feb 6, 2023

Google ScholarTM

Check

Altmetric


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