Paper by Leon Berkelmans
This paper examines the role of multiple aggregate shocks in monetary models with imperfect information. Because agents can draw mistaken inferences about which shock has occurred, the existence of multiple aggregate shocks profoundly influences macroeconomic dynamics. In particular, after a contractionary monetary shock these models can generate an initial increase in inflation (the “price puzzle”) and a delayed disinflation (a “hump”). A conservative numerical illustration exhibits these patterns. In addition, the model shows that increased price flexibility is potentially destabilizing.
Imperfect Information and Monetary Models: Multiple Shocks and their Consequences
Even with imperfect data, it is mathematically impossible to miss the expansion or contraction in the economy. These “economists” are X.Y! It’s simple. Use rates-of-change in bank debits. You can’t miss.