Inflation Targeting and Nonlinear Policy Rules: The Case of Asymmetric Preferences (new title: The Fed's monetary policy rule and U.S. inflation: The case of asymmetric preferences)

Paolo Surico

No 1280, CESifo Working Paper Series from CESifo

Abstract: This paper investigates the empirical relevance of a new framework for monetary policy analysis in which the decision-makers are allowed to weight differently positive and negative deviations of inflation and output from the target values. Reduced-form and structural estimates of the central bank first order condition indicate that the preferences of the Fed have been highly asymmetric only before 1979, with the response to output contractions being larger than the response to output expansions of the same magnitude. This asymmetry is shown to induce an average inflation bias of 1.11% that appears to have substantially contributed to the great inflation of the 1960s and 1970s.

Keywords: asymmetric objective; nonlinear monetary policy rules; average inflation bias (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp1280.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1280

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().