Asymmetries in Federal Reserve Objectives

Narayana Kocherlakota

No 31003, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper uses evidence from the Federal Open Market Committee’s Summary of Economic Projections to show that US monetary policymakers have objectives over unemployment and inflation outcomes that are not well-approximated through a conventional quadratic loss function. Rather, policymakers derive material costs (benefits) from overshooting (undershooting) their long-run inflation and unemployment goals. The trade-off between the resultant downward tilts in unemployment and inflation played a key role in shaping the evolution of monetary policy choices since the Great Recession.

JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2023-03
New Economics Papers: this item is included in nep-cba, nep-his and nep-mon
Note: ME
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Citations: View citations in EconPapers (1)

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