Measuring the Time-Inconsistency of US Monetary Policy

Paolo Surico ()

Macroeconomics from EconWPA

Abstract: This paper offers an alternative explanation for the behavior of postwar US inflation by measuring a novel source of monetary policy time- inconsistency due to Cukierman (2002). In the presence of asymmetric preferences, the monetary authorities end up generating a systematic inflation bias through the private sector expectations of a larger policy response in recessions than in booms. Reduced-form estimates of US monetary policy rules indicate that while the inflation target declines from the pre- to the post-Volcker regime, the average inflation bias, which is about one percent before 1979, tends to disappear over the last two decades. This result can be rationalized in terms of the preference on output stabilization, which is found to be large and asymmetric in the former but not in the latter period.

Keywords: asymmetric preferences; time-inconsistency; average inflation bias; US inflation (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2004-01-22
Note: Type of Document - pdf; pages: 22
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http://129.3.20.41/eps/mac/papers/0401/0401006.pdf (application/pdf)

Related works:
Working Paper: Measuring the time-inconsitency of US monetary policy (2003)
Working Paper: Measuring the time-inconsistency of US monetary policy (2004)
Journal Article: Measuring the Time Inconsistency of US Monetary Policy (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpma:0401006

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