Revealed preferences for macroeconomic stabilization

David Kiefer
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David Kiefer: University of Utah, http://www.econ.utah.edu

Journal of Applied Economics, 2008, vol. XI, pages 119-143

Abstract: In the new Keynesian model of endogenous stabilization governments have objectives with respect to macroeconomic performance, but are constrained by an augmented Phillips curve. Because they react more quickly to inflation shocks than private agents, governments can lean against the macroeconomic wind. We develop an econometric test of this characterization of the political-economic equilibrium. Applying this methodology to a variety of quadratic social welfare functions provides inferences about the functional form of stabilization preferences and about the formation of expectations.

Keywords: endogenous stabilization; policy objectives; adaptive expectations (search for similar items in EconPapers)
JEL-codes: E61 E63 (search for similar items in EconPapers)

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