The Macroeconomic Loss Function: A Critical Note
AbstractThe standard loss function gives the same weight to positive and negative deviations from the output and inflation targets. This short note criticizes this symmetry assumption. If the period covered is long enough output growth in excess of the target, and often also inflation rates that are below target, should be counted as gains instead of losses.
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Bibliographic InfoPaper provided by University of California, Davis, Department of Economics in its series Working Papers with number 22.
Date of creation: 16 Jan 2003
Date of revision:
Loss functions; macro policy evaluation;
Find related papers by JEL classification:
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
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- Waud, Roger N, 1976.
"Asymmetric Policymaker Utility Functions and Optimal Policy Under Uncertainty,"
Econometric Society, vol. 44(1), pages 53-66, January.
- Roger N. Waud, 1975. "Asymmetric policymaker utility functions and optimal policy under uncertainty," Special Studies Papers 57, Board of Governors of the Federal Reserve System (U.S.).
- Cecchetti, Stephen G, 2000. "Making Monetary Policy: Objectives and Rules," Oxford Review of Economic Policy, Oxford University Press, vol. 16(4), pages 43-59, Winter.
- Horowitz, Ann R., 1987. "Loss functions and public policy," Journal of Macroeconomics, Elsevier, vol. 9(4), pages 489-504.
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