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Does the Barro-Gordon model explain the behavior of US inflation? A reexamination of the empirical evidence

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  • Ruge-Murcia, Francisco J.

Abstract

This paper tests the predictions of the Barro-Gordon model using US data on inflation and unemployment. To that end, it constructs a general game-theoretical model with asymmetric preferences that nests the Barro-Gordon model and a version of Cukierman’s model as special cases. Likelihood Ratio tests indicate that the restriction imposed by the Barro-Gordon model is rejected by the data but the one imposed by the version of Cukierman’s model is not. Reduced-form estimates are consistent with the view that the Federal Reserve weights more heavily positive than negative unemployment deviations from the expected natural rate.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 50 (2003)
Issue (Month): 6 (September)
Pages: 1375-1390

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Handle: RePEc:eee:moneco:v:50:y:2003:i:6:p:1375-1390

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Web page: http://www.elsevier.com/locate/inca/505566

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  1. RUGE-MURCIA, Francisco J., 2001. "The Inflation Bias When the Central Bank Targets, the Natural Rate of Unemployment," Cahiers de recherche 2001-22, Universite de Montreal, Departement de sciences economiques.
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  18. A. Robert Nobay & David A. Peel, 1998. "Optimal Monetary Policy in a Model of Asymmetric Central Bank Preferences," FMG Discussion Papers dp306, Financial Markets Group.
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