How to Solve the Price Puzzle? A Meta-Analysis

The short-run increase in prices following an unexpected tightening of monetary policy represents a frequently reported puzzle. Yet the puzzle is surprisingly easy to explain away when all published models are quantitatively reviewed. We collect about 1,000 point estimates of impulse responses from 70 articles using vector autoregressive models and present a simple method of research synthesis for graphical results. We find some evidence of publication selection against the price puzzle. Our results suggest that the reported impulse responses depend systematically on the study design: when misspecifications are filtered out, the average impulse response shows that prices decrease soon after a tightening. The long-run response of prices to monetary policy shocks depends on the characteristics of the economy.