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Inflation Targeting Under Asymmetric Preferences

Author

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  • Mr. Francisco Javier Ruge-Murcia
Abstract
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.

Suggested Citation

  • Mr. Francisco Javier Ruge-Murcia, 2001. "Inflation Targeting Under Asymmetric Preferences," IMF Working Papers 2001/161, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2001/161
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    References listed on IDEAS

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    More about this item

    Keywords

    WP; rate of inflation; inflation targets; asymmetric preferences; credibility; natural rate of unemployment; standard error; unemployment process; inflation deviation; Phillips curve; Inflation; Inflation targeting; Unemployment rate; Unemployment; Global;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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