Asymmetries in federal reserve objectives

Narayana R Kocherlakota

Economic Policy, 2025, vol. 40, issue 122, 371-400

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.

Keywords: E52; E58 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:oup:ecpoli:v:40:y:2025:i:122:p:371-400.

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