 Are public preferences reflected in monetary policy reaction functions?Journal of Macroeconomics, 2014, vol. 40, issue C, 60-68 Abstract: In this paper, we test whether public preferences for price stability (obtained from the Eurobarometer survey) were actually reflected in the interest rates set by eight central banks. We estimate augmented Taylor (1993) rules for the period 1976Q2–1994Q1 using the dynamic GMM estimator. We find, first, that interest rates did reflect society’s preferences since the central banks raised rates when society’s inflation aversion was above its long-run trend. Second, the reaction to inflation is was non-linearly increasing in the degree of inflation aversion. Third, this emphasis on fighting inflation did not have a detrimental effect on output stabilization. We conclude with some implications concerning the democratic legitimation of central banks. Keywords: Central bank; Democratic legitimation; Eurobarometer; Inflation aversion; Monetary policy; Public preferences (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:40:y:2014:i:c:p:60-68 DOI: 10.1016/j.jmacro.2014.02.009 Access Statistics for this article Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos More articles in Journal of Macroeconomics from Elsevier |
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