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

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.