Are Central Bank Preferences Asymmetric? A Comment
A recent paper by Ruge-Murcia [European Economic Review 48 (2004), 91-107] on asymmetric central bank objectives provides a new perspective on the policy roots of inflation in developed economies. More precisely, the paper demonstrates that if the distribution of the supply shocks is normal, then the reduced form solution for inflation implies a positive (or negative) relation between average inflation and the variance of shocks. We argue that the evidence offered in support of this hypothesis suffers from lack of identification because Phillips curve nonlinearity combined with quadratic central bank preferences yield the same reduced form solution for inflation. If so, estimating reduced form for inflation will not be able to discriminate between these models. Yet they have quite different implications for policy. Other, structural, evidence is needed.
|Date of creation:||Feb 2008|
|Date of revision:|
|Publication status:||Published in Economic Notes , Banca Monte dei Paschi di Siena SpA, vol. 37(1) (2008), 119-126|
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- Naveen Srinivasan & Vidya Mahambare & M. Ramachandran, 2006. "UK monetary policy under inflation forecast targeting: is behaviour consistent with symmetric preferences?," Oxford Economic Papers, Oxford University Press, vol. 58(4), pages 706-721, October.
- RUGE-MURCIA, Francisco J., 2001.
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Cahiers de recherche
2001-22, Universite de Montreal, Departement de sciences economiques.
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- Alan S. Blinder, 1997. "Distinguished Lecture on Economics in Government: What Central Bankers Could Learn from Academics--And Vice Versa," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 3-19, Spring.
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