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Inflation Targeting Under Asymmetric Preferences
Author:
Mr. Francisco Javier Ruge-Murcianull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2001: Issue 161
Language:
English
Publication Date:
01 Oct 2001
DOI:
https://doi.org/10.5089/9781451857818.001
ISBN:
9781451857818
ISSN:
1018-5941
Pages:
54
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
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2001: Issue 161