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Do Asymmetric Central Bank Preferences Help Explain Observed Inflation Outcomes?

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  • Doyle, Matthew
  • Falk, Barry L.

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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Bibliographic Info

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

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

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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Keywords: inflation; monetary policy; asymmetric loss;

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References

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Cited by:
  1. Ikeda, Taro, 2010. "Time-varying asymmetries in central bank preferences: The case of the ECB," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 1054-1066, December.
  2. López-Villavicencio, Antonia, 2013. "Interest rates, government purchases and the Taylor rule in recessions and expansions," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 382-392.
  3. Osama D. Sweidan, 2009. "Asymmetric central bank's preference and inflation rate in Jordan," Studies in Economics and Finance, Emerald Group Publishing, vol. 26(4), pages 232-245, October.
  4. 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.

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