On Price Level Stability, Real Interest Rates and Core Inflation

The paper adresses several issues pertaining to the problem of monetary policy, inflation measurement, and relative prices. After some preliminary empirical analysis showing that the problem must be relevant we set out to conduct a mainly theoretical investigation. If the per period utility function is not homotheoretical counterpants, and their properties, including those that are calculated from them (such as real interest rates), must be interpreted with care. We examine the consequences of goods heterogeneity in the fremwork of a stochastic dynamic equlibrium model without a steady state. To solve the model we posit specific, though we think plausible, assumptions concerning fiscal policy in a small open economy. Conclusions are obtained with important policy implications to the effect that inflation variability may be tolareted, and that the correct meaning and interpretation of real interest rates may run counter to accepted ideas. Our general conclusion is tahat neglecting goods heterogeneity may grossly mislead policy makers and analysts in certain circumstances.

Leverage and foreign ownership in Hungary

In this study enterprise leverage in Hungary is analysed with particular emphasis on the relationship between foreign equity investment and leverage. We examine the hypothesis according to which attracting foreign equity capital relatively early in the transition process might have resulted in relaxing the borrowing constraint for enterprises. The regression analysis reported shows support for this hypothesis. There exist indications that some progress towards the „equilibrium” financing configuration has taken place. Also we have been able to re produce some previous results of the literature concerning leverage in general. We compare the determinants of leverage in Hungary with those in industrialised and other transition economies, and find some interesting differences. A curious finding is that sectoral leverage levels have not followed industrial country patterns so far.

Financial crises in transition countries: models and facts

Financial vulnerability has become a much-studied topic in recent years. The Mexican crisis of 1994-95 reinvigorated interest in developing country capital market crises, and the 1997 events originating in East Asia widened the range of possible causes and mechanism. Then the Russian crisis of 1998 brought the issue especially close to the transition countries in Central and Eastern Europe, where exchange rate, banking and stock market upheavals have been quite frequent. Countries with a view towards joining the Economic and Monetary Union must regard vulnerability to crises as one of their most important concerns, since preconditions of candidature explicitly require that violent movements in certain financial variables, such as exchange rates, do not occour. In this paper we shell first ask whether there has been a veritable boom of financial crises in transition economies. Section 2 is devoted to definitions, and it briefly lists some facts about the incidence of financial crises in 11 transitioneconomies, restricting attention to the period 1995-1999, in order to avoid issues pertaining to the beginning of transition. Thereafter we focus on currency crises and ask what the theoretical models tell us about these.

Estimates of and Problems with Core Inflation in Hungary

The traditional CPI measure has many drawbacks, when used for very different purposes, and it is not at all surprising that a great deal of work has been devoted to its improvement. Besides seasonal adjustment, various other techniques have been developed to find the “core” inflation index. Although a generally accepted definition of core inflation does not exist, the literature converges towards identifying certain desirable properties that a “good” core index must possess. After reviewing the literature we describe how the publication of a core index fits into the monetary policy strategy of the National Bank of Hungary. Monetary policy both in the form of setting the instruments and by communicating to the public is geared to arrive at a mutual understanding with the markets. By publishing a core inflation index, the NBH aims at providing the public with a price measure that can function as a co-ordination device between policy makers and market participants. As the “index number” problem is clearly connected with relative price changes, we analyze in some depth this issue, too. We argue that there have been clearly visible tendencies in relative price developments that jeopardize some of the traditional uses of inflation measures. Our results suggest that a substantial amount of noise and apparent seasonality have come about as a result of government decisions. Finally we muster some possible procedures to define core indices in Hungary, by comparing their smoothness and forecasting ability from several points of view. Our conclusion is that there is no overwhelming reason to abandon the current ''exclusion'' approach toward the core.

Miért és mitől védjük a fogyasztókat?: Aszimmetrikus információ és/vagy korlátozott racionalitás

A szorosabb értelemben vett fogyasztóvédelem szempontjából a hagyományos közgazdaságtan általános ajánlása egyszerű volt: a fogyasztókat minél teljesebben kell informálni, és mivel gyakran ez nem áll a vállalatok érdekében, a kötelező információnyilvánosság eszközeivel szabályozásra is szükség van. A szabályozó feladata annak eldöntése, hogy mely információk számítanak „relevánsnak”. A viselkedési közgazdaságtan azonban nemcsak a kevéssé informált, hanem a korlátozottan racionális fogyasztóval is számol. Ezért a fogyasztó megtévesztése közgazdasági elmélet alapján is értelmezhetővé vált. Sőt, a megtévesztés nemcsak hazugságot, félreinformálást jelent ebben a megközelítésben, hanem a fogyasztók kognitív és döntési hibáinak, „irracionális” preferenciáinak tudatos kihasználását is. Emellett az új megközelítés a szabályozói kudarcok új szempontjait veti fel, hiszen a régi elmélet alapján a szabályozási kudarcok oka is csupán a szabályozók információs hiányosságai lehettek. A korlátozott racionalitás a szabályozókra és jogalkalmazókra is érvényes. A tanulmány ezeket a kérdéseket vizsgálja konkrét példákon – elsősorban a fogyasztói hitelezésen és szakértői szolgáltatásokon – keresztül