This paper proposes a simple explanation for the frequent appearance of a price puzzle in VARs designed for monetary … policy analysis. It suggests that the best method of solving the puzzle implies a close connection between theory and … empirics rather than the introduction of a commodity price. It proves that the omission of a measure of output gap (or …

rigidity, leads to higher exchange rate volatility. With exogenous nominal price stickiness, part of the required relative … price adjustment is provided through larger movements in the endogenously determined exchange rate. -- Exchange rate pass …

exchange rate, through Consumer Price Index (CPI) inflation targeting is, however, beneficial. Welfare can, moreover, be …