Utility functions for central bankers: the not so drastic quadratic
Following Blinder's (1997) suggestion, we examine the implications for the optimal interest rate rule following the relaxation of the assumption that the policymaker's loss function is quadratic. We investigate deviations from quadratics for both symmetric and asymmetric preferences for a single target and find that: (i) other characterisations of risk aversion, than that implied by the quadratic, only affect dead-weight losses, unless there is also muliplicative uncertainty; (ii) asymmetries affect the optimal rule under both additive and muliplicative uncertainty but result in interest rate paths observationally similar, and in some cases equivalent, those implied by a shifted quadratic; (iii) the use of an asymmetric los functions leads to important insights on the issues of goal independence and monetary policy delegation; (iv) non-quadratic preferences, per se , are neither sufficient nor necessary to generate the 'Brainard conservatism principle' and thus do not offer much added value when analysing the policy issues of caution and gradualism. Our results suggest that in the context of monetary policymaking the convenient assumption of quadratic losses may not be that drastic after all.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||01 Jan 1998|
|Date of revision:|
|Contact details of provider:|| Postal: Highfield, Southampton SO17 1BJ|
Phone: (+44) 23 80592537
Fax: (+44) 23 80593858
Web page: http://www.economics.soton.ac.uk/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Favero, C. & Hendry, D., 1990. "Testing The Lucas Critique: A Review," Economics Series Working Papers 99101, University of Oxford, Department of Economics.
- Preston J. Miller, 1978. "Forecasting with econometric methods: a comment," Working Papers 104, Federal Reserve Bank of Minneapolis.
- Jurgen A. Doornik & David F. Hendry & Bent Nielsen, 1998.
"Inference in Cointegrating Models: UK M1 Revisited,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 12(5), pages 533-572, December.
- Doornik, Jurgen A & Hendry, David F & Nielsen, Bent, 1998. " Inference in Cointegrating Models: UK M1 Revisited," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 533-72, December.
- Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107, December.
- Diebold, Francis X., 1989.
"Forecast combination and encompassing: Reconciling two divergent literatures,"
International Journal of Forecasting,
Elsevier, vol. 5(4), pages 589-592.
- Francis X. Diebold, 1989. "Forecast combination and encompassing: reconciling two divergent literatures," Finance and Economics Discussion Series 80, Board of Governors of the Federal Reserve System (U.S.).
- Godfrey, Leslie G, 1978. "Testing for Higher Order Serial Correlation in Regression Equations When the Regressors Include Lagged Dependent Variables," Econometrica, Econometric Society, vol. 46(6), pages 1303-10, November.
- Andrew C Harvey & Andrew Scott, 1994.
"Seasonality in Dynamic Regression Models,"
CEP Discussion Papers
dp0184, Centre for Economic Performance, LSE.
- Hendry, David F, 1994. "HUS Revisited," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 86-106, Summer.
- Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, December.
- Clements, Michael P. & Hendry, David F., 1997. "An empirical study of seasonal unit roots in forecasting," International Journal of Forecasting, Elsevier, vol. 13(3), pages 341-355, September.
- Hendry, David F & Doornik, Jurgen A, 1997. "The Implications for Econometric Modelling of Forecast Failure," Scottish Journal of Political Economy, Scottish Economic Society, vol. 44(4), pages 437-61, September.
- Birchenhall, C R, et al, 1989. "A Seasonal Model of Consumption," Economic Journal, Royal Economic Society, vol. 99(397), pages 837-43, September.
- Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
- Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-92, December.
- Muellbauer, John, 1994. "The Assessment: Consumer Expenditure," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 1-41, Summer.
- Grayham E. Mizon & David F. Hendry, 1998. "Exogeneity, causality, and co-breaking in economic policy analysis of a small econometric model of money in the UK," Empirical Economics, Springer, vol. 23(3), pages 267-294.
- Carruth, Alan & Henley, Andrew, 1990. "Can Existing Consumption Functions Forecast Consumer Spending in the Late 1980's?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 211-22, May.
- Coulson, N.E. & Robins, R.P., 1989. "Forecast Combination In A Dynamic Setting," Papers 8-88-4, Pennsylvania State - Department of Economics.
- Neil R. Ericsson & John S. Irons, 1995. "The Lucas critique in practice: theory without measurement," International Finance Discussion Papers 506, Board of Governors of the Federal Reserve System (U.S.).
- Engle, Robert F. & Hendry, David F., 1993.
"Testing superexogeneity and invariance in regression models,"
Journal of Econometrics,
Elsevier, vol. 56(1-2), pages 119-139, March.
- Engle, R. & Hendry, D., 1990. "Testing Super Exogeneity And Invariance In Regression Models," Economics Series Working Papers 99100, University of Oxford, Department of Economics.
- Miller, Preston J, 1978. "Forecasting with Econometric Methods: A Comment," The Journal of Business, University of Chicago Press, vol. 51(4), pages 579-84, October.
- Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244, December.
- Clive W. J. Granger & Melinda Deutsch, 1991.
"Comments on the evaluation of policy models,"
International Finance Discussion Papers
413, Board of Governors of the Federal Reserve System (U.S.).
- Hansen, Bruce E., 1992.
"Testing for parameter instability in linear models,"
Journal of Policy Modeling,
Elsevier, vol. 14(4), pages 517-533, August.
- Tom Doan, . "STABTEST: RATS procedure to perform Hansen's stability test for OLS," Statistical Software Components RTS00199, Boston College Department of Economics.
- David F. Hendry & Michael P. Clements, 1994. "Can Econometrics Improve Economic Forecasting?," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 130(III), pages 267-298, September.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
When requesting a correction, please mention this item's handle: RePEc:stn:sotoec:9818. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Thorn)
If references are entirely missing, you can add them using this form.