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What does Monetary Policy Reveal about a Central Bank's Preferences?

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  • Efrem Castelnuovo
  • Paolo Surico

Abstract

The design of monetary policy depends on the targeting strategy adopted by the central bank. This strategy describes a set of policy preferences, which are actually the structural parameters to analyse monetary policy making. Accordingly, we develop a calibration method to estimate a central bank's preferences from the estimates of an optimal Taylor-type rule. The empirical analysis on US data shows that output stabilization has not been an independent argument in the Fed's objective function during the Greenspan's era. This suggests that the output gap has entered the policy rule only as leading indicator for future inflation, therefore being only instrumental (to stabilize inflation) rather than important per se. Copyright Banca Monte dei Paschi di Siena SpA, 2003

Suggested Citation

  • Efrem Castelnuovo & Paolo Surico, 2003. "What does Monetary Policy Reveal about a Central Bank's Preferences?," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 32(3), pages 335-359, November.
  • Handle: RePEc:bla:ecnote:v:32:y:2003:i:3:p:335-359
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Andreza Aparecida Palma & Marcelo Savino Portugal, 2014. "Preferences Of The Central Bank Of Brazil Under The Inflation Targeting Regime: Estimation Using A Dsge Model For A Small Open Economy," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41st Brazilian Economics Meeting] 055, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    2. Diouf, Ibrahima & Pépin, Dominique, 2017. "Gender and central banking," Economic Modelling, Elsevier, vol. 61(C), pages 193-206.
    3. Bernd Hayo & Boris Hofmann, 2006. "Comparing monetary policy reaction functions: ECB versus Bundesbank," Empirical Economics, Springer, vol. 31(3), pages 645-662, September.
    4. FIodendji, Komlan, 2011. "Should Canadian monetary policy respond to asset prices? Evidence from a structural model," MPRA Paper 28039, University Library of Munich, Germany, revised 10 Jan 2011.
    5. Palma, Andreza Aparecida & Portugal, Marcelo Savino, 2011. "Preferences of the Central Bank of Brasil under the inflation targeting regime: commitment vs. discretion," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 65(4), November.
    6. Edilean Kleber da Silva & Marcelo Savino Portugal, 2010. "Central Bank Preferences And Monetary Rules Under The Inflation Targeting Regime In Brazil," Working Papers 07-2010, Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto.
    7. Palma, Andreza Aparecida & Portugal, Marcelo Savino, 2014. "Preferences of the Central Bank of Brazil under the inflation targeting regime: Estimation using a DSGE model for a small open economy," Journal of Policy Modeling, Elsevier, vol. 36(5), pages 824-839.
    8. repec:fgv:epgrbe:v:65:n:4:a:2 is not listed on IDEAS
    9. Grégory Levieuge & Yannick Lucotte, 2014. "A Simple Empirical Measure of Central Banks' Conservatism," Southern Economic Journal, Southern Economic Association, vol. 81(2), pages 409-434, October.
    10. repec:sbe:breart:v:29:y:2009:i:1:a:2697 is not listed on IDEAS
    11. Martin Feldkircher & Florian Huber & Isabella Moder, 2016. "Modeling the evolution of monetary policy rules in CESEE," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 8-27.
    12. Fiodendji, Komlan, 2011. "Should Canadian Monetary Policy Respond to Asset Prices? Evidence from a Structural Model," MPRA Paper 27942, University Library of Munich, Germany.
    13. Daniel Komlan Fiodendji, 2012. "Should Canadian Monetary Policy Respond to Asset Prices? Evidence from a Structural Model," Working Papers 1209E, University of Ottawa, Department of Economics.
    14. Diouf, Ibrahima & Pépin, Dominique, 2017. "Gender and central banking," Economic Modelling, Elsevier, vol. 61(C), pages 193-206.

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