Inflation Targeting Under Asymmetric Preferences

October 1, 2001

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Format: Chicago

Francisco Javier Ruge-Murcia. Inflation Targeting Under Asymmetric Preferences, (USA: International Monetary Fund, 2001) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper develops and estimates a game-theoretical model of inflation targeting where the central banker's preferences are asymmetric around the targeted rate. Specifically, positive deviations from the target can be weighted more, or less, severely than negative ones in the central banker's loss function. It is shown that some of the previous results derived under the assumption of symmetry are not robust to this generalization of preferences. Estimates of the central banker's preference parameters for Canada, Sweden, and the United Kingdom are statistically different from the one implied by the commonly-used quadratic loss function.

Subject: Economic forecasting, Inflation, Inflation targeting, Labor, Monetary policy, Prices, Unemployment, Unemployment rate

Keywords: Asymmetric preferences, Credibility, Global, Inflation, Inflation deviation, Inflation targeting, Inflation targets, Natural rate of unemployment, Phillips curve, Rate of inflation, Standard error, Unemployment, Unemployment process, Unemployment rate, WP

Publication Details

Pages:

54
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2001/161
Stock No:

WPIEA1612001
ISBN:

9781451857818
ISSN:

1018-5941

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