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The Nonlinear Phillips Curve and Inflation Forecast Targeting - Symmetric Versus Asymmetric Monetary Policy Rules

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  • Schaling, E.

    (Tilburg University, Center for Economic Research)

Abstract

We extend the Svensson (1997a) inflation forecast targeting framework with a convex Phillips curve. We derive an asymmetric target rule, that implies a higher level of nominal interest rates than the Svensson (1997a) forward looking version of the reaction function popularised by Taylor (1993). Extending the analysis with uncertainty about the output gap, we find that uncertainty induces a further upward bias in nominal interest rates. Thus, the implications of uncertainty for optimal policy are the opposite of standard multiplier uncertainty analysis.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1998-136.

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Date of creation: 1998
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Handle: RePEc:dgr:kubcen:1998136

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Web page: http://center.uvt.nl

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Keywords: inflation targets; nonlinearities; asymmetries; stochastic control;

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  1. Douglas Laxton & Peter B. Clark & David Rose, 1995. "Asymmetry in the U.S. Output-Inflation Nexus," IMF Working Papers 95/76, International Monetary Fund.
  2. Eijffinger, S.C.W. & Hoeberichts, M.M. & Schaling, E., 1997. "Why Money Talks and Wealth Whispers: Monetary Uncertainty and Mystique," Discussion Paper 1997-47, Tilburg University, Center for Economic Research.
  3. Douglas Laxton & Guy Meredith & David Rose, 1994. "Asymmetric Effects of Economic Activityon Inflation," IMF Working Papers 94/139, International Monetary Fund.
  4. Douglas Laxton & Guy Debelle, 1996. "Is the Phillips Curve Really a Curve? Some Evidence for Canada, the United Kingdom, and the United States," IMF Working Papers 96/111, International Monetary Fund.
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