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Testing for Asymmetries in the Preferences of the Euro-Area Monetary Policymaker

Alvaro Aguiar and Manuel Martins ()
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Alvaro Aguiar: CEMPRE, Faculdade de Economia, Universidade do Porto

FEP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: This paper tests for asymmetries in the preferences of the Euro-Area monetary policymaker with 1995:I-2004:III data from the last update of the ECB's Area-wide database. Following the relevant literature, we distinguish between three types of asymmetry: precautionary demand for expansions, precautionary demand for price stability and interest rate smoothing asymmetry. Based on the joint GMM estimation of the Euler equation of optimal policy and the AS-AD structure of the macroeconomy, we find evidence of precautionary demand for price stability in the preferences revealed by the monetary policymaker. This type of asymmetry is consistent with the ECB’s definition of price stability and with the priority of credibility-building by a recently created monetary authority.

Keywords: Central Bank Preferences; Asymmetry; Euro Area; Optimal Control; GMM. (search for similar items in EconPapers)
JEL-codes: E52 E58 C32 C61 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2005-07
New Economics Papers: this item is included in nep-eec, nep-fmk and nep-mac
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Related works:
Journal Article: Testing for asymmetries in the preferences of the euro-area monetary policymaker (2008) Downloads
Working Paper: Testing for Asymmetries in the Preferences of the Euro-Area Monetary Policymaker (2005) Downloads
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