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Asymmetries in federal reserve objectives

Author

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  • Narayana R Kocherlakota

Abstract

This paper uses evidence from the Federal Open Market Committee’s Summary of Economic Projections to show that US monetary policymakers have objectives over unemployment and inflation outcomes that are not well approximated through a conventional quadratic loss function. Rather, policymakers derive material costs (benefits) from overshooting (undershooting) their long-run inflation and unemployment goals. The trade-off between the resultant downward tilts in unemployment and inflation played a key role in shaping the evolution of monetary policy choices since the Great Recession.

Suggested Citation

  • Narayana R Kocherlakota, 2025. "Asymmetries in federal reserve objectives," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 40(122), pages 371-400.
    • Handle: RePEc:oup:ecpoli:v:40:y:2025:i:122:p:371-400.
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    File URL: http://hdl.handle.net/10.1093/epolic/eiae056
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    More about this item

    Keywords

    E52; E58;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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