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Monetary policy loss functions: two cheers for the quadratic

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  • Jagjit Chadha
  • Philip Schellekens

Abstract

The implications for optimal monetary policy of relaxing the normal assumption of a quadratic loss function are examined. Several alternative specifications are considered, but the results suggest that the convenient assumption of quadratic losses may not be that drastic.

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Paper provided by Bank of England in its series Bank of England working papers with number 101.

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Date of creation: Sep 1999
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Handle: RePEc:boe:boeewp:101

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  1. James Tobin, 1989. "On the Theory of Macroeconomic Policy," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 931, Cowles Foundation for Research in Economics, Yale University.
  2. Shiller, Robert J., 1999. "Human behavior and the efficiency of the financial system," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 20, pages 1305-1340 Elsevier.
  3. Christoffersen, Peter F. & Diebold, Francis X., 1997. "Optimal Prediction Under Asymmetric Loss," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 13(06), pages 808-817, December.
  4. Svensson, Lars E.O., 1997. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," Seminar Papers, Stockholm University, Institute for International Economic Studies 615, Stockholm University, Institute for International Economic Studies.
  5. Horowitz, Ann R., 1987. "Loss functions and public policy," Journal of Macroeconomics, Elsevier, Elsevier, vol. 9(4), pages 489-504.
  6. repec:cup:etheor:v:13:y:1997:i:6:p:808-17 is not listed on IDEAS
  7. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198288244, October.
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Cited by:
  1. Simone Casellina & Mariacristina Uberti, 2008. "Optimal Monetary Policy and Long-term Interest Rate Dynamics: Taylor Rule Extensions," Computational Economics, Society for Computational Economics, Society for Computational Economics, vol. 32(1), pages 183-198, September.
  2. Juan de Dios Tena & A. R. Tremayne, 2006. "Modelling Monetary Transmission In Uk Manufacturing Industry," Statistics and Econometrics Working Papers, Universidad Carlos III, Departamento de Estadística y Econometría ws062911, Universidad Carlos III, Departamento de Estadística y Econometría.
  3. Osama D. Sweidan, 2009. "Asymmetric central bank's preference and inflation rate in Jordan," Studies in Economics and Finance, Emerald Group Publishing, Emerald Group Publishing, vol. 26(4), pages 232-245, October.
  4. Paolo Surico, 2002. "Inflation Targeting and Nonlinear Policy Rules: the Case of Asymmetric Preferences," Macroeconomics, EconWPA 0210002, EconWPA, revised 09 Dec 2003.
  5. Mayer, Eric, 2003. "The mechanics of a reasonably fitted quarterly New Keynesian macro model," W.E.P. - Würzburg Economic Papers 41, University of Würzburg, Chair for Monetary Policy and International Economics.
  6. Özer Karagedikli & Kirdan Lees, 2004. "Do inflation targeting central banks behave asymmetrically? Evidence from Australia and New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP 2004/02, Reserve Bank of New Zealand.
  7. Corrado, Luisa & Holly, Sean, 2003. "Nonlinear Phillips curves, mixing feedback rules and the distribution of inflation and output," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 28(3), pages 467-492, December.
  8. al-Nowaihi, Ali & Stracca, Livio, 2002. "Non-standard central bank loss functions, skewed risks, and certainty equivalence," Working Paper Series, European Central Bank 0129, European Central Bank.
  9. Paolo Surico, 2004. "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)," CESifo Working Paper Series 1280, CESifo Group Munich.
  10. Xavier Debrun, 2000. "Fiscal Rules in a Monetary Union: A Short-Run Analysis," Open Economies Review, Springer, Springer, vol. 11(4), pages 323-358, October.
  11. Simon Hall & Chris Salmon & Tony Yates & Nicoletta Batini, 1999. "Uncertainty and Simple Monetary Policy Rules - An illustration for the United Kingdom," Bank of England working papers, Bank of England 96, Bank of England.
  12. Corrado, L. & Holly, S., 2000. "Piecewise Linear Feedback Rules in a Non Linear Model of the Phillips Curve: Evidence from the US and the UK," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0019, Faculty of Economics, University of Cambridge.
  13. Hyeon-seung Huh & Hyun Lee & Namkyung Lee, 2009. "Nonlinear Phillips curve, NAIRU and monetary policy rules," Empirical Economics, Springer, Springer, vol. 37(1), pages 131-151, September.
  14. Mirco Soffritti & Francesco Zanetti, 2008. "The advantage of tying one's hands: revisited," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 13(2), pages 135-149.

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