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 two-sector two-good closed economy new Keynesian model to study the optimal choice of price index in markets with...

Despite the intensive efforts made by economists to examine regional income inequality in China, limited attention has been paid to disentangle the contribution of regional price differentials. This paper examines regional price differential in urban China over the period 1986 to 2001. Spatial...

This paper provides a single welfare measure to show the effects of consumer price changes upon households in Ireland between 1999 and 2010. This measure combines an efficiency component using a Linear Expenditure System (LES) and an equity component using the Atkinson Social Welfare Function....

We present a new partial equilibrium theory of price adjustment, based on consumer loss aversion. In line with prospect theory, the consumers' perceived utility losses from price increases are weighted more heavily than the perceived utility gains from price decreases of equal magnitude. Price...

We incorporate inequity aversion into an otherwise standard New Keynesian dynamic equilibrium model with Calvo wage contracts and positive inflation. Workers with relatively low incomes experience envy, whereas those with relatively high incomes experience guilt. The former seek to raise their...

Competitiveness differentials are blamed for the instability of the Eurozone. Most of the analyses focus on labour costs or labour-market institutions. This paper explores an additional source of differentials in competitiveness: land and building prices. European countries, especially France,...

This paper considers the problem of aggregation in the case of large linear dynamic panels, where each micro unit is potentially related to all other micro units, and where micro innovations are allowed to be cross sectionally dependent. Following Pesaran (2003), an optimal aggregate function is...

Utilizing new survey data collected between 2009 and 2014, this paper analyzes American households' subjective expectations on future home values. We explore the relationship between house price expectations, local economic conditions, and households' individual characteristics. We examine the...

We model empirically the role of labor market institutions in affecting the response of inflation to labor market and exchange rate shocks in the EU. We adopt a simple Phillips curve framework, treating separately the sectors producing traded and non-traded goods. Our results show that labor...

In this paper we analyse a new Phillips curve (NPC) model and demonstrate that (i) frictional growth, i.e. the interplay of wage-staggering and money growth, generates a nonvertical NPC in the long-run, and (ii) the Phillips curve (PC) shifts with productivity growth. On this basis we estimate a...