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Relative Prices and Inflation Stabilisation

Author

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  • Kosuke Aoki

    (Faculty of Economics, University of Tokyo)

Abstract

When price adjustment is sluggish, inflation is costly in terms of welfare because it distorts various kinds of relative prices. Stabilising aggregate price inflation does not necessarily minimise these costs, but stabilising a well-designed core inflation minimises the cost of relative price fluctuations and thus the cost of inflation.

Suggested Citation

  • Kosuke Aoki, 2015. "Relative Prices and Inflation Stabilisation," UTokyo Price Project Working Paper Series 047, University of Tokyo, Graduate School of Economics.
    • Handle: RePEc:upd:utppwp:047
    as

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    File URL: http://www.price.e.u-tokyo.ac.jp/img/researchdata/pdf/p_wp065.pdf
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    References listed on IDEAS

    as
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    5. Anton Nakov & Carlos Thomas, 2014. "Optimal Monetary Policy with State-Dependent Pricing," International Journal of Central Banking, International Journal of Central Banking, vol. 10(3), pages 49-94, September.
    6. Ben S. Bernanke & Julio J. Rotemberg (ed.), 1997. "NBER Macroeconomics Annual 1997," MIT Press Books, The MIT Press, edition 1, volume 1, number 026252242x, December.
    7. Mikhail Golosov & Robert E. Lucas Jr., 2007. "Menu Costs and Phillips Curves," Journal of Political Economy, University of Chicago Press, vol. 115(2), pages 171-199.
    8. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    9. Julio J. Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361, National Bureau of Economic Research, Inc.
    10. Stefano Eusepi & Bart Hobijn & Andrea Tambalotti, 2011. "CONDI: A Cost-of-Nominal-Distortions Index," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(3), pages 53-91, July.
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    More about this item

    Keywords

    Relative prices; inflation.;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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