Stochastic Refinement of The Pecorino's Optimal Inflation-Rate Model

Costas Kyritsis, Petros Kiochos
European Research Studies Journal, Volume I, Issue 4, 41-60, 1998
EOI: 10.11214/thalassinos.01.04.004

Abstract:

In this short paper with title "Stochastic Refinement of the Pecorino's Optimal Inflation-Rate model", we extend the model of Pecorino to include stochastic effects. The basic result is that under natural conditions the optimality of the model's inflation rate, remains, even if we refine it to a stochastic model. The stochastic refinement has in addition a three-fold effect: a) It makes the model mathematically more sophisticated and advanced b) It gives to it statistical and econometric foundation; it is therefore related directly to empirical measurements c) Many different cases can be considered to follow the model (up to a probability of an error) that in the previous deterministic formulation should be excluded.


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