The Macroeconomic Loss Function: A Critical Note
The standard loss function counts both positive and negative deviations from the output and inflation targets as losses. But if the sample period is long enough, then output growth in excess of the target, and often also inflation rates that are below target, should be counted as gains instead of losses.
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- Horowitz, Ann R., 1987. "Loss functions and public policy," Journal of Macroeconomics, Elsevier, vol. 9(4), pages 489-504.
- Cecchetti, Stephen G, 2000. "Making Monetary Policy: Objectives and Rules," Oxford Review of Economic Policy, Oxford University Press, vol. 16(4), pages 43-59, Winter.
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