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Changes in Federal Reserve preferences

Listed author(s):
  • Lakdawala, Aeimit

Using a model of optimizing central bank behavior, I estimate the dynamic behavior of preferences, which are captured by the relative weight put on stabilizing inflation versus minimizing the output gap. Unlike previous work, I let this parameter vary continuously over time. There is a drastic but steady rise in the weight on inflation around the appointment of Paul Volcker; however, I find variation in preferences throughout the sample period. The results suggest that preference changes have been more complex than typically assumed in the literature. The estimated preference series is used to perform counterfactual experiments and to construct a new measure of monetary shocks.

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File URL: http://www.sciencedirect.com/science/article/pii/S0165188916301087
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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 70 (2016)
Issue (Month): C ()
Pages: 124-143

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Handle: RePEc:eee:dyncon:v:70:y:2016:i:c:p:124-143
DOI: 10.1016/j.jedc.2016.07.003
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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