Inflation expectations, Business Economics

Assignment Help:
An individual holds B_0 dollars in a saving accountant at t=0 and earns continuously compounded interest at a nominal rate r. Therefore, the nominal value of his savings at time t is given B_t=e^rt. To find out the real value of his savings at each moment in time, we must divide by the price level. Assume the price level follows a geometric Brownian motion:
dP=pPdt+sPdz
where p is the expected rate of inflation and s is its volatility parameter
Let B_t/P_t be the real value of savings. Derive the law of motion for b using Ito’s Lemma. (Hint: you should obtain a law db=f (b)dt+ g(b)dz, where f and g are functions og just b for you to derive)
What is the individual’s expected real rate of return on his savings?
Calculate the expected real value of the individual’s savings at time t from the point of view of t=0, i.e E_¦(0@)[b_t]

Related Discussions:- Inflation expectations

Base multiplier framework for money supply, Question: Extract of the Sp...

Question: Extract of the Speech by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, at the Swiss Banking Global Symposium, Zurich, 16 November 2012

Theories of maslow and hertzberg to categorize project team, How can Maslow...

How can Maslow and Hertzberg’s Herzberg theories of inspiration assist you to categorize your project team and the way work is assigned? We must suppose that working in an IS p

Discuss the structure conduct performance framework, (a) Describe and discu...

(a) Describe and discuss the Structure Conduct Performance framework (b) The hypotheses of interest in the Structure Conduct Performance framework are as follows: Hypothesi

How does social capital influence development, How does social capital infl...

How does social capital influence development? Problem: Low social capital leads to potential conflicts and high transaction costs which hinder growth. Several LDCs (Less Deve

How will you deal with common level of presentation, You are dissatisfied a...

You are dissatisfied along with the common level of presentation of one of your team. The quality of work is below your hopes. How will you deal along with this? You could take

How can be comparative advantage improved, How can be comparative advantage...

How can be comparative advantage improved? Comparative advantage can be gained or improved through: • Investment during the education and also in training • Investment wi

Calculate the standard error, The Wallpaper Shop, Inc., is a rapidly growin...

The Wallpaper Shop, Inc., is a rapidly growing chain of wallpaper shops that caters to the do-it-yourself home remodeling market. During the past year, 15 stores were operated in s

Apply concepts to real economic situations, Applying economic concepts to s...

Applying economic concepts to situations at work.  This writing assignment is intended to give you a chance to apply concepts to real economic situations. Think of these concept

Internal audit, Explain the essential distinction among the stages of growt...

Explain the essential distinction among the stages of growth theory of development, the theory of international-dependence in both its neo-marxist and false paradigm conceptualizat

“Ledger is said to be the principal book entry and t, “Ledger is said to be...

“Ledger is said to be the principal book entry and the transactions can even be directly entered into the ledger account.” Elaborate and explain why journal is necessary.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd