The Central Bank Loss Function and Quantitative Easing as a Stackelberg Game

Kjell Hausken and Mthuli Ncube ()

Chapter Chapter 3 in Quantitative Easing and Its Impact in the US, Japan, the UK and Europe, 2013, pp 7-11 from Springer

Abstract: Abstract The central bank loss function implies that the central bank’s benefit of QE is that of reputation enhancement of controlled inflation and strong economic growth. The loss function is quadratic capturing the deviation of the actual inflation and actual GDP from their socially desirable targets. The loss function at any time t is given by L t = 1 2 π t − π * 2 + θ y t − y * 2 , $$ {L}_t=\frac{1}{2}\left[{\left({\pi}_t-{\pi}^{*}\right)}^2+\theta {\left({y}_t-{y}^{*}\right)}^2\right], $$

Keywords: Interest Rate; Nash Equilibrium; Loss Function; Central Bank; Federal Reserve (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:spr:spbchp:978-1-4614-9646-5_3

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DOI: 10.1007/978-1-4614-9646-5_3

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