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Uncovering Policy Makers' Loss Function

  • Paolo Surico

    (Bocconi University)

The quadratic form of policy makers' loss function has gained a wide consensus in monetary policy analysis mainly because of its analytical tractability. A number of researchers, however, have recently proposed alternative functional forms which have also proved to yield tractable solutions of the central bank optimization problem. Using a nonparametric specification of the output gap argument into the loss function, this paper attempts to discriminate among three classes of proposals through the evidence drawn upon the form of the US efficient policy frontier.

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Paper provided by EconWPA in its series Macroeconomics with number 0210003.

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Length: 9 pages
Date of creation: 16 Oct 2002
Date of revision:
Handle: RePEc:wpa:wuwpma:0210003
Note: Type of Document - tex; prepared on pc; to print on hp; pages: 9; figures: included
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  1. 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.
  2. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, June.
  3. Orphanides, Athanasios & Wieland, Volker, 2000. "Inflation zone targeting," European Economic Review, Elsevier, vol. 44(7), pages 1351-1387, June.
  4. repec:cup:cbooks:9780521355643 is not listed on IDEAS
  5. 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.
  6. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  7. Alex Cukierman & Anton Muscatelli, 2001. "Do Central Banks have Precautionary Demands for Expansions and for Price Stability?," Working Papers 2002_4, Business School - Economics, University of Glasgow, revised Mar 2002.
  8. repec:cup:cbooks:9780521586115 is not listed on IDEAS
  9. 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.
  10. Cukierman, A., 1999. "The Inflation Bias Result Revisited," Papers 38-99, Tel Aviv.
  11. 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.
  12. RUGE-MURCIA, Francisco J., 2001. "The Inflation Bias When the Central Bank Targets, the Natural Rate of Unemployment," Cahiers de recherche 2001-22, Universite de Montreal, Departement de sciences economiques.
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