As a simple corollary to Delbaen and Schachermayer’s fundamental theorem of asset pricing [5] [6] [7], we prove, in a general finite-dimensional semimartingale setting, that the no unbounded profit with bounded risk (NUPBR) condition is equivalent to the existence of a strict martingale density for the price process. This extends the result of Choulli and Stricker [2] to the càdlàg cases, and r...

unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. Abstract: An explicit state-price deflator for the multidimensional Black-Scholes-Merton market with a multiple factor Gaussian bond price dynamics is constructed. It immediately yields an extension of the Margrabe formula in this multiple risk economy. Restricting further the attention...

Over the 1980s and 1990s, monetary policy in most industrialized countries has focussed increasingly on achieving rates of inflation at or close to price stability. The result in the 1990s has been a remarkable convergence in these economies towards relatively low rates of inflation. In some countries, such as New Zealand, Canada, the United Kingdom, and Sweden the move towards price stability ...

Outline This paper analyses the effects of monetary policy decisions on inflation expectations of European consumers. Using a novel approach that does not assume unbiasedness of expectations, which makes use of survey data on expected future as well as perceived past price developments and allows for non-normal peakedness and asymmetry, we convert qualitative survey responses of consumers in va...

S ince the early 1990s, a number of central banks have adopted numerical inflation targets as a guide for monetary policy. The targets are intended to help central banks achieve and maintain price stability by specifying an explicit goal for monetary policy based on a given time path for a particular measure of inflation. In some cases the targets are expressed as a range for inflation over tim...

This paper characterizes Ramsey-optimal monetary policy in a medium-scale macroeconomic model that has been estimated to fit well postwar U.S.\ business cycles. We find that mild deflation is Ramsey optimal in the long run. However, the optimal inflation rate appears to be highly sensitive to the assumed degree of price stickiness. Within the window of available estimates of price stickiness (b...

The fiscal theory says that the price level is determined by the ratio of nominal debt to the present value of real primary surpluses. I analyze long-term debt and optimal policy in the fiscal theory. I find that the maturity structure of the debt matters. For example, it determines whether news of future deficits implies current inflation or future inflation. When long-term debt is present, th...

The prospects for achieving price stability and full employment sooner with wage and price controls than with traditional monetary and fiscal actions alone depend on the ability of the wage and price controls to dampen expectations of inflation. Until expectations of inflation are substantially reduced, inflationary pressures \vill remain strong evcn though measured prices are constrained by go...

In a stylized Neo-Keynesian model with Calvo-type price and wage stickiness, this paper evaluates the usefulness of delegating price level and nominal wage targets to a discretionary central bank when the monetary policy objectives are summarized by a utility-based loss function. Despite its ability to engender policy inertia, price level targeting is often dominated by inflation targeting when...