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Recession Aversion, Output and the Kydland-Prescott Barro-Gordon Model

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  • Gerlach, Stefan

Abstract

This Paper explores the relationship between the Kydland-Prescott Barro-Gordon model and models with asymmetric policy preferences. While both yield an inflation bias, recession aversion dampens the output effects of contractionary supply shocks. Some inflation may therefore reflect policy preferences.

Suggested Citation

  • Gerlach, Stefan, 2003. "Recession Aversion, Output and the Kydland-Prescott Barro-Gordon Model," CEPR Discussion Papers 3687, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3687
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    References listed on IDEAS

    as
    1. McCallum, Bennett T., 1997. "Crucial issues concerning central bank independence," Journal of Monetary Economics, Elsevier, vol. 39(1), pages 99-112, June.
    2. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    3. Cukierman, A., 1999. "The Inflation Bias Result Revisited," Papers 38-99, Tel Aviv.
    4. Ruge-Murcia, Francisco J., 2004. "The inflation bias when the central bank targets the natural rate of unemployment," European Economic Review, Elsevier, vol. 48(1), pages 91-107, February.
    5. Ireland, Peter N., 1999. "Does the time-consistency problem explain the behavior of inflation in the United States?," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 279-291, October.
    6. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, January.
    7. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
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    Citations

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    Cited by:

    1. Giuseppe Diana & Pierre-Guillaume Méon, 2008. "Monetary Policy in the Presence of Asymmetric Wage Indexation," Southern Economic Journal, Southern Economic Association, vol. 75(1), pages 69-90, July.
    2. Sudhanshu Kumar & Naveen Srinivasan & Muthiah Ramachandran, 2012. "A time-varying parameter model of inflation in India," Indian Growth and Development Review, Emerald Group Publishing, vol. 5(1), pages 25-50, April.
    3. Helge Berger & Jakob de Haan & Jan‐Egbert Sturm, 2011. "Does money matter in the ECB strategy? New evidence based on ECB communication," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 16(1), pages 16-31, January.
    4. Qin, Ting & Enders, Walter, 2008. "In-sample and out-of-sample properties of linear and nonlinear Taylor rules," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 428-443, March.
    5. Doyle, Matthew & Falk, Barry, 2010. "Do asymmetric central bank preferences help explain observed inflation outcomes?," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 527-540, June.
    6. Hans-Werner Wohltmann & Alexander Totzek, 2012. "Barro-Gordon Revisited: Reputational Equilibria in a New Keynesian Model," Credit and Capital Markets, Credit and Capital Markets, vol. 45(1), pages 27-50.
    7. Srinivasan, Naveen & Jain, Sumit & Ramachandran, M., 2009. "Monetary policy and the behaviour of inflation in India: Is there a need for institutional reform?," Journal of Asian Economics, Elsevier, vol. 20(1), pages 13-24, January.
    8. Alvaro Aguiar & Manuel Martins, 2008. "Testing for asymmetries in the preferences of the euro-area monetary policymaker," Applied Economics, Taylor & Francis Journals, vol. 40(13), pages 1651-1667.
    9. Tambakis Demosthenes N., 2009. "Optimal Monetary Policy with a Convex Phillips Curve," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-25, June.
    10. Naveen Srinivasan & Vidya Mahambare & M. Ramachandran, 2008. "Dynamics of inflation in India: does the new inflation bias hypothesis provide an explanation?," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 1(2), pages 199-212.
    11. Helge Berger & Jakob de Haan & Jan-Egbert Sturm, 2006. "Does money matter in the ECB strategy?," KOF Working papers 06-125, KOF Swiss Economic Institute, ETH Zurich.
    12. Alexander Perruchoud, 2009. "Estimating a Taylor Rule with Markov Switching Regimes for Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 145(II), pages 187-220, June.
    13. Shen, Chung-Hua & Lin, Kun-Li & Guo, Na, 2016. "Hawk or dove: Switching regression model for the monetary policy reaction function in China," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 94-111.
    14. Stefan Gerlach & John Lewis, 2014. "Zero lower bound, ECB interest rate policy and the financial crisis," Empirical Economics, Springer, vol. 46(3), pages 865-886, May.
    15. repec:kap:empiri:v:44:y:2017:i:3:d:10.1007_s10663-016-9339-1 is not listed on IDEAS
    16. Gerlach, Stefan & Lewis, John, 2010. "The Zero Lower Bound, ECB Interest Rate Policy and the Financial Crisis," CEPR Discussion Papers 7933, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    asymmetric policy reactions; inflation bias; reaction functions;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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