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| Author: | Russell, S. |
| Title: | "Quasifundamental" variation in the price level and the inflation rate |
| Journal: | Journal of Economic Theory
1997 : MAY, VOL. 74:1, p. 106-151 |
| Index terms: | PRICE LEVEL INFLATION RATES |
| Language: | eng |
| Abstract: | A challenge for modern monetary theory is to construct rational-expectations general equilibrium models that capture the qualitative features of the observed behavior of national price levels and inflation rates. Important observations about developed economies are that their price levels and inflation rates tend to stable in the long run but exessively variable in the short run. To address the long-run observation, models are needed that have equilibria in which objects resembling national currencies are held and valued. To address the short-run observation, models are needed in which the price level and inflation rate are "too variable" in the sense of displaying fluctuations that are both potentially avoidable and welfare-reducing. This paper lays out a version of the overlapping generations model different from the standard nonstochastic version. |
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