Does Inflation Adjust Faster to Aggregate Technology Shocks than to Monetary Policy Shocks?

Authors


  • I am particularly grateful to the editor Paul Evans, and two anonymous referees as well as to Martin Eichenbaum and Giorgio Primiceri for suggestions and comments. I am also grateful to Pierpaolo Benigno, Massimo Franchi, Francesco Lippi, Marco Lippi, Stefano Neri, as well as seminar participants at Northwestern University, EIEF, and MONCASCA workshop.

Abstract

This paper studies U.S. inflation adjustment speed to aggregate technology shocks and to monetary policy shocks in a medium size Bayesian vector autoregression model. According to the model estimated on the 1959–2007 sample, inflation adjusts much faster to aggregate technology shocks than to monetary policy shocks. These results are robust to different identification assumptions and measures of aggregate prices. However, by separately estimating the model over the pre- and post-1980 periods, this paper further shows that inflation adjusts much faster to technology shocks than to monetary policy shocks in the post-1980 period, but not in the pre-1980 period.

Ancillary