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The Central Bank Inflation Bias in the Presence of Asymmetric Preferences and Non-Normal Shocks

  • George Christodoulakis

    ()

    (Manchester Business School, University of Manchester)

  • David Peel

    ()

    (Lancaster University Management School)

We investigate the nature of the inflation bias in a model that exhibits asymmetries in preferences and non–normality in shocks but simplifies to the classic Barro-Gordon problem as a special case. The inflation bias is shown to depend on the trade-off between preference, structural and the scale and shape parameters of the model.

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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 29 (2009)
Issue (Month): 3 ()
Pages: 1608-1620

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Handle: RePEc:ebl:ecbull:eb-08e50023
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  1. DOLADO, J.J. & MARIA-DOLORES, R. & RUGE-MURCIA, Francisco J., 2003. "Nonlinear Monetary Policy Rules: Some New Evidence for the U.S," Cahiers de recherche 18-2003, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  2. Paolo Surico, 2004. "Inflation Targeting and Nonlinear Policy Rules: the Case of Asymmetric Preferences," Computing in Economics and Finance 2004 108, Society for Computational Economics.
  3. Cukierman, Alex, 2001. "Are Contemporary Central Banks Transparent about Economic Models and Objectives and What Difference Does it Make?," Discussion Paper Series 1: Economic Studies 2001,05, Deutsche Bundesbank, Research Centre.
  4. Alex Cukierman & Stefan Gerlach, 2003. "The inflation bias revisited: theory and some international evidence," Manchester School, University of Manchester, vol. 71(5), pages 541-565, 09.
  5. Cukierman, Alex & Muscatelli, Vito Antonio, 2007. "Non Linear Taylor Rules and Asymmetric Preferences in Central Banking - Evidence from the UK and the US," CEPR Discussion Papers 6428, C.E.P.R. Discussion Papers.
  6. George Christodoulakis, 2006. "Generalised Rational Bias in Financial Forecasts," Annals of Finance, Springer, vol. 2(4), pages 397-405, October.
  7. Taylor Mark P. & Davradakis Emmanuel, 2006. "Interest Rate Setting and Inflation Targeting: Evidence of a Nonlinear Taylor Rule for the United Kingdom," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 10(4), pages 1-20, December.
  8. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
  9. Tambakis Demosthenes N., 1999. "Monetary Policy with a Nonlinear Phillips Curve and Asymmetric Loss," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 3(4), pages 1-17, January.
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