Time Variation in an Optimal Asymmetric Preference Monetary Policy Model

Steven Cassou and Jesús Vázquez Pérez

No 1988-088X, DFAEII Working Papers from University of the Basque Country - Department of Foundations of Economic Analysis II

Abstract: This paper considers a time varying parameter extension of the Ruge-Murcia (2003, 2004) model to explore whether some of the variation in parameter estimates seen in the literature could arise from this source. A time varying value for the unemployment volatility parameter can be motivated through several means including variation in the slope of the Phillips curve or variation in the preferences of the monetary authority.We show that allowing time variation for the coefficient on the unemployment volatility parameter improves the model fit and it helps to provide an explanation of inflation bias based on asymmetric central banker preferences, which is consistent across subsamples.

Keywords: asymmetric preferences; time varying parameter; conditional unemployment volatility (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Journal Article: Time variation in an optimal asymmetric preference monetary policy model (2014)
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Dpto. de Fundamentos del Análisis Económico II, = Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain

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