The central banks of New Zealand, Canada, and the United Kingdom have recently decided to make price stability the overriding goal of monetary policy. Similar proposals in the United States have received a lukewarm reception. Although some opponents have argued that moderate inflation is beneficial, many concede its effect on economic welfare is detrimental.1 Instead, they argue that a price st...

Optimal Price Indices for Targeting Inflation under Incomplete Markets In models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating the flexible price equilibrium. In this paper, we develop a twosector two-good closed economy new Keynesian model to study the optimal choice of price index in markets with financial frictions. Financial frict...

inflation has always been an economic problem and different solutions have been proposed to control it. although it is said that “higher output lowers inflation rate” but it is true when other factors are constant. this study searches the answer to the following question: “what is the effect of inflation rate and output in a case that inflation rate and output growth has a volatility trend?” to...

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...