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The macroeconomic controversy over price rigidity - how to resolve it and how Bayesian estimation has led us astray

Meenagh, David ORCID: https://orcid.org/0000-0002-9930-7947, Minford, Patrick ORCID: https://orcid.org/0000-0003-2499-935X and Wickens, Michael R. ORCID: https://orcid.org/0000-0002-6862-0674 2022. The macroeconomic controversy over price rigidity - how to resolve it and how Bayesian estimation has led us astray. Open Economies Review 33 , pp. 617-630. 10.1007/s11079-021-09658-y

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Abstract

Price rigidity plays a central role in macroeconomic models but remains controversial. Those espousing it look to Bayesian estimated models in support, while those assuming price flexibility largely impose it on their models. So controversy continues unresolved by testing on the data. In a Monte Carlo experiment we ask how different estimation methods could help to resolve this controversy. We find Bayesian estimation creates a large potential estimation bias compared with standard estimation techniques. Indirect estimation where the bias is found to be low appears to do best, and offers the best way forward for settling the price rigidity controversy.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Additional Information: This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made.
Publisher: Springer
ISSN: 0923-7992
Date of First Compliant Deposit: 4 January 2022
Date of Acceptance: 10 December 2021
Last Modified: 29 Nov 2022 10:26
URI: https://orca.cardiff.ac.uk/id/eprint/146350

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