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Do Asymmetric Central Bank Preferences Help Explain Observed Inflation Outcomes?

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Author Info
Doyle, Matthew
Falk, Barry L.

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Abstract

Recent theoretical work shows that changes in the volatility of inflation and/or unemployment affect equilibrium inflation outcomes when the central banker's loss function is asymmetric. We show that previous evidence offered in support of the proposition that the volatility of unemployment helps explain inflation outcomes suffers from a spurious regression problem. Once this problem is controlled for, the evidence suggests that the volatility of unemployment does not help explain inflation outcomes. There is some evidence of a relationship between inflation and its volatility, but the data is not strongly supportive of the view that asymmetric central bank preferences are an important driver of inflation.

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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12501.

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Length: 30 pages
Date of creation: 20 Feb 2006
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Handle: RePEc:isu:genres:12501

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Related research
Keywords: Inflation; Monetary Policy; Asymmetric Loss;

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Find related papers by JEL classification:
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Fabián Gredig, 2007. "Asymmetric Monetary Policy Rules and the Achievement of the Inflation Target: The Case of Chile," Working Papers Central Bank of Chile 451, Central Bank of Chile. [Downloadable!]
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