Many studies document that the inflation rate is governed by persistent trend shifts and time-varying uncertainty about trend inflation. As both these quantities are unobserved, a forecaster has to learn about changes in trend inflation by a signal extraction procedure. I suggest that the...

This paper explores whether the cost channel solves the price puzzle. We set-up a New Keynesian DSGE model and estimate it for the euro area by adopting a minimum distance approach. Our findings suggest that - under certain parameter restrictions which are not rejected by the data - the cost...