Replication Package: Low Inflation and Price Puzzles of Quantitative Easing in the Four-Equation New Keynesian Model with a Cost Channel

Description

This is the replication package accompanying the article: von Campe, R., 2026. Inflation and Price Puzzles of Quantitative Easing in the Four-Equation New Keynesian Model with a Cost Channel. Economic Modelling, forthcoming. Abstract: Given the low inflation observed during quantitative easing (QE) and recent evidence on its supply-side mechanisms, I study inflation responses and policy implications arising from nontrivial supply-side effects of QE in a New Keynesian (NK) model. To this end, I introduce a cost channel that transmits through the long end of the yield curve. As a limiting case, I derive a condition under which QE leads to a price puzzle---an outcome I refer to as self-defeating QE. Additionally, simulations point to a case of QE-defeating interest rate policy (IRP); even when the zero lower bound (ZLB) is binding, the Taylor rule's output gap coefficient is crucial in determining inflation under QE. I show that under any configuration of the supply-side effects of QE, a sufficiently persistent QE policy can prevent an unintended inflation outcome if the output gap response of the (future) short-term policy rate is sufficiently small. Availability Status of the Data: All data are publicly available and sources are disclosed (see below). All data series are included in the replication package. Information on Data Source: Please refer to Tables A.1–A.4 within Appendix A.1 of the article.

Steps to reproduce

Please refer to the README.pdf file for detailed instructions. Software Dependencies: This code was implemented under Windows 11 using Matlab Version 2024a and Dynare Version 5.5. Some replication codes require the following Matlab products: Econometrics Toolbox. Step-by-Step Replication Instructions: The replication files follow a one-shot procedure. Table 1 (see README.pdf) summarizes all relevant information for replication purposes. Output files are stored in a dedicated subfolder located in the same directory as the main script file. To replicate a specific figure or table, simply navigate to folder indicated by the column “Main File Location” and execute the corresponding main script listed in the column “Main File for Replication” of Table 1.

Institutions

• Helmut Schmidt University

  Hamburg, Hamburg

Categories

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