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Inflation Targeting Under Asymmetric Preferences

  • Francisco J. Ruge-Murcia

    (Université de Montréal)

This paper develops and estimates a game-theoretical model of inflation targeting where the central banker's preferences are asymmetric around the targeted rate. In particular, positive deviations from the target can be weighted more, or less, severely than negative ones in the central banker's loss function. It is shown that some of the previous results derived under the assumption of symmetry are not robust to the generalization of preferences. Estimates of the central banker's preference parameters for Canada, Sweden, and the United Kingdom are statistically different from the ones implied by the commonly used quadratic loss function.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/01/Fic/dt0106e.pdf
File Function: First version, 2001
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Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0106.

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Length: 51 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:bde:wpaper:0106
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