I argue that the gap between consumer price index (CPI) inflation and actual inflation varies systematically across the business cycle. CPI inflation is the change in expenditure required to afford a fixed basket of varieties. Actual inflation is the change in minimum expenditure required to afford a given level of utility. In a New Keynesian model with variety entry and exit and sticky prices,...

We develop a novel technique to estimate inflation expectations and inflation risk premia when only a limited number of inflation-indexed bonds are available. The method involves pricing coupon-bearing inflation-indexed bonds directly in terms of an affine term structure model, and avoids the usual requirement of estimating zero-coupon real yield curves. We estimate the model using a non-linear...

This paper analyzes the U.S. congressional proposal to instruct the Federal Reserve to, in the next five years, lower inflation to zero from its current rate of around 5 percent. The paper concludes that, when other policy options are considered, the zero inflation policy is not advisable. Its benefits would be very small—possibly negative—while its costs would probably be significant. Other, m...

The purpose of this study is to investigate the impact of exchange rate misalignment on inflation persistence. For this purpose, Vector Auto Regression method and Markov Switching model is used for quarterly data during 1989:4 -2014:3. The results show that, the impact of liquidity growth and exchange rate misalignment on inflation persistence is positive. On the other hand, GDP growth has a ne...

in macroeconomic studies, social welfare is assumed as a function of inflation and unemployment. although the social welfare function which is dependent to unemployment and inflation variables has been used widely in macroeconomic theories, but this relation needs to be tested through empirical observations. this paper, using variables such as to economics of happiness area and subjective wellb...