Template-Type: ReDIF-Paper 1.0
Author-Name: János Vincze
Author-X-Name-First: János
Author-X-Name-Last: Vincze
Author-Email: 
Author-Workplace-Name: Magyar Nemzeti Bank (at the time of writing the study)
Author-Name: Sándor Valkovszky
Author-X-Name-First: Sándor
Author-X-Name-Last: Valkovszky
Author-Email: valkovszkys@mnb.hu
Author-Workplace-Name: Magyar Nemzeti Bank

Title: On Price Level Stability, Real Interest Rates and Core Inflation

Abstract: The paper adresses several issues pertaining to the problem of monetary policy, inflation measurement, and relative prices. After some preliminary empirical analysis showing that the problem must be relevant we set out to conduct a mainly theoretical investigation. If the per period utility function is not homotheoretical counterpants, and their properties, including those that are calculated from them (such as real interest rates), must be interpreted with care. We examine the consequences of goods heterogeneity in the fremwork of a stochastic dynamic equlibrium model without a steady state. To solve the model we posit specific, though we think plausible, assumptions concerning fiscal policy in a small open economy. Conclusions are obtained with important policy implications to the effect that inflation variability may be tolareted, and that the correct meaning and interpretation of real interest rates may run counter to accepted ideas. Our general conclusion is tahat neglecting goods heterogeneity may grossly mislead policy makers and analysts in certain circumstances.

Length: 41 pages
Creation-Date: 2001
File-URL: http://www.mnb.hu/letoltes/wp2001-3.pdf
File-Format: Application/pdf

Number: 2001/3
Classification-JEL: 
Keywords: 
Handle: RePEc:mnb:wpaper:2001/3