How to Solve the Price Puzzle? A Meta-Analysis

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: The short-run increase in prices following an unexpected tightening of monetary policy represents a frequently reported puzzle. Yet the puzzle is easy to explain away when all published models are quantitatively reviewed. We collect and examine about 1,000 point estimates of impulse responses from 70 articles using vector autoregressive models to study monetary transmission in various countries. We find some evidence of publication selection against the price puzzle in the literature, but our results also suggest that the reported puzzle is mostly caused by model misspecifications. Finally, the long-run response of prices to monetary policy shocks depends on the characteristics of the economy. Terms of use: Documents in EconStor may Non-technical SummaryOne of the major peculiarities of vector autoregressions, the dominant framework for the empirical analysis of monetary policy, is the counterintuitive rise in prices often reported in these models to follow a monetary contraction. The so-called price puzzle is encountered by about a half of all empirical studies, and in many of them the puzzle is even statistically significant. In this paper we collect 70 published studies using vector autoregressions to examine the effects of monetary policy. Employing meta-regression analysis, a quantitative method of research synthesis, we investigate which aspects of methodology systematically contribute to reporting the price puzzle. The meta-regression analysis also shows how the characteristics of the countries examined influence the reported shape of the impulse responses and thus help explain the cross-country heterogeneity in monetary transmission.We evaluate the reported graphs of impulse responses at five time horizons (representing the short, medium, and long run) and for each horizon extract the numerical value of the impulse response. In this way we collect more than 1,000 estimates, 210 on average for each horizon; the estimates summarize evidence from 31 countries and were produced by 103 researchers. We present a method of research synthesis suitable for graphical results such as impulse responses and employ modern meta-analysis methods to examine the extent of publication selection bias (the preference of authors, editors, or referees for some particular results based on significance or consistency with theory).Our results indicate some evidence of publication selection against the price puzzle, and the selection seems to strengthen for respo...

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