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Inflation Targeting Under Asymmetric Preferences

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  • Francisco J. Ruge-Murcia

    (Université de Montréal)

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. In particular, 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 the generalization of preferences. Estimates of the central banker's preference parameters for Canada, Sweden, and the United Kingdom are statistically different from the ones implied by the commonly used quadratic loss function.

Suggested Citation

  • Francisco J. Ruge-Murcia, 2001. "Inflation Targeting Under Asymmetric Preferences," Working Papers 0106, Banco de España.
    • Handle: RePEc:bde:wpaper:0106
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    More about this item

    Keywords

    inflation; central banks; games;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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