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A Prudent Central Banker

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  • Ruge-Murcia, F.J.

Abstract

This paper studies monetary policy in an economy where the central banker's preferences are asymmetric around optimal inflation.

Suggested Citation

  • Ruge-Murcia, F.J., 2001. "A Prudent Central Banker," Cahiers de recherche 2001-07, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  • Handle: RePEc:mtl:montec:2001-07
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    References listed on IDEAS

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    1. Beetsma, Roel M W J & Jensen, Henrik, 1998. "Inflation Targets and Contracts with Uncertain Central Banker Preferences," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 384-403, August.
    2. Svensson, Lars E O, 1997. "Optimal Inflation Targets, "Conservative" Central Banks, and Linear Inflation Contracts," American Economic Review, American Economic Association, vol. 87(1), pages 98-114, March.
    3. Ruge-Murcia, Francisco J, 2003. "Inflation Targeting under Asymmetric Preferences," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(5), pages 763-785, October.
    4. Svensson, Lars E. O., 1999. "Inflation targeting as a monetary policy rule," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 607-654, June.
    5. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    6. Richard H. Clarida & Mark Gertler, 1997. "How the Bundesbank Conducts Monetary Policy," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 363-412, National Bureau of Economic Research, Inc.
    7. Christoffersen, Peter F. & Diebold, Francis X., 1997. "Optimal Prediction Under Asymmetric Loss," Econometric Theory, Cambridge University Press, vol. 13(6), pages 808-817, December.
    8. Larry G. Epstein & Stanley E. Zin, 2013. "Substitution, risk aversion and the temporal behavior of consumption and asset returns: A theoretical framework," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 12, pages 207-239, World Scientific Publishing Co. Pte. Ltd..
    9. Jensen, Henrik, 1997. "Credibility of Optimal Monetary Delegation," American Economic Review, American Economic Association, vol. 87(5), pages 911-920, December.
    10. Francisco J. Ruge-Murcia, 2000. "Uncovering financial markets' beliefs about inflation targets," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(5), pages 483-512.
    11. McCallum, Bennett T, 1995. "Two Fallacies Concerning Central-Bank Independence," American Economic Review, American Economic Association, vol. 85(2), pages 207-211, May.
    12. Gul, Faruk, 1991. "A Theory of Disappointment Aversion," Econometrica, Econometric Society, vol. 59(3), pages 667-686, May.
    13. Granger, C.W.J. & Pesaran, H., 1996. "A Decision_Theoretic Approach to Forecast Evaluation," Cambridge Working Papers in Economics 9618, Faculty of Economics, University of Cambridge.
    14. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    15. Persson, Torsten & Tabellini, Guido, 1993. "Designing institutions for monetary stability," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 53-84, December.
    16. 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.
    17. Muscatelli, V Anton, 1999. "Inflation Contracts and Inflation Targets under Uncertainty: Why We Might Need Conservative Central Bankers," Economica, London School of Economics and Political Science, vol. 66(262), pages 241-254, May.
    18. Caballero, Ricardo J., 1990. "Consumption puzzles and precautionary savings," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 113-136, January.
    19. Robert J. Barro & David B. Gordon, 2019. "A Positive Theory of Monetary Policy in a Natural Rate Model," Credit and Capital Markets, Credit and Capital Markets, vol. 52(4), pages 505-525.
    20. A. Robert Nobay & David A. Peel, 1998. "Optimal Monetary Policy in a Model of Asymmetric Central Bank Preferences," FMG Discussion Papers dp306, Financial Markets Group.
    21. John H. Green, 1996. "Inflation Targeting: Theory and Policy Implications," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 779-795, December.
    22. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-167, March.
    23. 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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    Cited by:

    1. Pierdzioch, Christian & Rülke, Jan-Christoph & Stadtmann, Georg, 2015. "Central banks’ inflation forecasts under asymmetric loss: Evidence from four Latin-American countries," Economics Letters, Elsevier, vol. 129(C), pages 66-70.
    2. 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.
    3. Dolado Juan & Pedrero Ramón María-Dolores & Ruge-Murcia Francisco J., 2004. "Nonlinear Monetary Policy Rules: Some New Evidence for the U.S," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 8(3), pages 1-34, September.
    4. Denise R. Osborn & Dong Heon Kim & Marianne Sensier, 2005. "Nonlinearity in the Fed's monetary policy rule," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(5), pages 621-639.
    5. Shawn Chen‐Yu Leu & Jeffrey Sheen, 2006. "Asymmetric Monetary Policy in Australia," The Economic Record, The Economic Society of Australia, vol. 82(s1), pages 85-96, September.
    6. 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.
    7. Orlando Gomes, 2010. "Nonlinear Inflation Expectations and Endogenous Fluctuations," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 4(3), pages 263-280, November.
    8. Fabián Gredig, 2007. "Asymmetric Monetary Policy Rules and the Achievement of the Inflation Target: The Case of Chile," Working Papers Central Bank of Chile 451, Central Bank of Chile.
    9. 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.
    10. 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.
    11. Pierdzioch, Christian & Rülke, Jan-Christoph & Stadtmann, Georg, 2012. "On the loss function of the Bank of Canada: A note," Economics Letters, Elsevier, vol. 115(2), pages 155-159.
    12. Thanassis Kazanas & Apostolis Philippopoulos & Elias Tzavalis, 2011. "Monetary Policy Rules And Business Cycle Conditions," Manchester School, University of Manchester, vol. 79(s2), pages 73-97, September.
    13. 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.
    14. Gomes, Orlando, 2006. "Monetary policy and economic growth: combining short and long run macro analysis," MPRA Paper 2849, University Library of Munich, Germany.
    15. White, Halbert & Pettenuzzo, Davide, 2014. "Granger causality, exogeneity, cointegration, and economic policy analysis," Journal of Econometrics, Elsevier, vol. 178(P2), pages 316-330.

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    More about this item

    Keywords

    MONETARY POLICY ; INFLATION;

    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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