Bundesbank paper looks at financial shocks’ impact on inflation
Shocks that cause output and inflation to diverge can worsen trade-offs for central banks, paper says
A discussion paper published by the Deutsche Bundesbank offers a new approach to analysing the impact of financial shocks on inflation.
In Financial shocks and inflation dynamics, Angela Abbate, Sandra Eickmeier and Esteban Prieto apply a vector autoregressive model to data on the US economy.
The authors identify financial shocks "by combining contemporaneous zero and short-run sign restrictions on impulse response functions". They find that expansionary financial shocks temporarily lower
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