Do Asymmetric Central Bank Preferences Help Explain Observed Inflation Outcomes?

Matthew Doyle and Barry Falk
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Barry Falk: Department of Economics, James Madison University

No 902, Working Papers from University of Waterloo, Department of Economics

Abstract: When the central banker’s loss function is asymmetric, changes in the volatility of inflation and/or unemployment affect equilibrium inflation. This suggests that changing macroeconomic volatilities may be an important driving force behind trends in observed inflation. Previous evidence, which has offered support for this idea, suffers from a spurious regression problem. Once this problem is controlled for, the evidence suggests that the volatility of unemployment does not help explain inflation outcomes. There is some evidence of a relationship between inflation and its volatility, but overall the data does not support the view that changing economic volatility, as filtered through asymmetric central bank preferences, is an important driver of inflation trends.

Keywords: Inflation; Monetary Policy; Asymmetric Loss Function. (search for similar items in EconPapers)
JEL-codes: E50 E61 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2009-02, Revised 2009-02
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Related works:
Journal Article: Do asymmetric central bank preferences help explain observed inflation outcomes? (2010)
Working Paper: Do Asymmetric Central Bank Preferences Help Explain Observed Inflation Outcomes? (2006)
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