Monetary and and Economic Studies · 1992 · 34 citations · 0 references
Social SciencesBusiness EconomicsEconomicsAsset PricingMacroeconomicsMonetary EconomicsAsset PricesAsset Pricing EmpiricsDynamic Economic ModelsDynamic PricingIntertemporal PricingMonetary PolicyAsset Pricing DynamicsDynamic Macroeconomic EquilibriumEquilibrium Price DeterminationInflation MeasurementIntertemporal OptimizationIntertemporal Price DynamicsMacroeconomic Asset PricingWeighted Geometric Mean
The purpose of this paper is to develop the theory of dynamic equilibrium price index (DEPI), and to discuss its theoretical as well as policy implications. DEPI is derived from intertemporal optimization and arbitrage equilibrium condition as a weighted geometric mean of product price inflation and asset price inflation. DEPI measures a change in ex ante intertemporal cost of living, which is a more fundamental indicator of inflation and the dynamic state of macroeconomy than conventional price indexes. Thus, DEPI functions as an important information variable for monetary policy.