Do Central Banks Have Precautionary Demands for Expansions and for Price Stability? - Theory and Evidence
By A. Cukierman, V. Muscatelli. Social Science Research Network, 2002
111 citations recorded by the source corpus.
This paper analyses the impact of asymmetric preferences with respect to inflation and output by policymakers on interest-rate reaction functions. A theoretical framework which makes it possible to identify the dominant type of asymmetry is developed and related to the precautionary demand of pol- icymakers for expansions and for low insation. Using data for some G7 economies, the paper shows that, except for Germany, nonlinear and asym- metric behaviour is present. A main Þnding is that where credibility-building and disinflation has already been achieved, the monetary authorities develop a greater precautionary demand for output expansions than for low inflation. This may generate a new type of inflation bias. Conversely, where credibility- building is still a concern for the authorities, managing the business cycle is dominated by concerns of the monetary authorities to keep inflation expec- tations low.
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/7245d15f7d0aa3a6c77b8c9a8e1411d64737da42
How researchers see this paper
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In Economics and Econometrics
- Stefan Gerlach
- A. Cukierman
- Ramón María-Dolores
- Juan J. Dolado
- M. Naveira
- Katrin Assenmacher-Wesche
- Volker Wieland
- P. Surico
Citations in the corpus
- The Monetary Policy of the European Central Bank (2007, unknown): “Preferences are asymmetric in that policy makers are allowed, but not required, to assign different weights to positive and negative deviations of inflation, output and the interest rate from their reference values, as motivated by a growing empirical literature on several G7 economies; see Cukierma”
- The Fed's monetary policy rule and U.S. inflation: The case of asymmetric preferences (2007, unknown): “Cukierman and Muscatelli (2003) and Martin and Milas (2004) show some international evidence supporting the notion of nonlinear”
- Are monetary-policy reaction functions asymmetric?: The role of nonlinearity in the Phillips curve (2005, background): “More recently, Orphanides and Wieland (2000), Ruge-Murcia (2002), Dolado et al. (2002), Surico (2002) and Cukierman and Muscatelli (2002) have analysed the implications for the derivation of interest-rate reaction functions of assuming asymmetric preferences with respect to in5ation and/or output…”
- The Inflation Bias Revisited: Theory and Some International Evidence (2003, methodology): “Using a New Keynesian framework Cukierman and Muscatelli (2002) develop a procedure for the detection of a precautionary demand for expansions from interest rate reaction functions of the type used by Clarida, Gali and Gertler (2000).”