optimal discretionary monetary policy in a model of asymmetric central bank preferences this paper considers optimal monetary policy in the context of the central bank adopting an asymmetric objective function our results show that under asymmetric preferences many of the extant results on the time consistency problem need no longer hold

does monetary unification lead to excessive debt accumulation abstract if discretionary monetary policy gives rise to an inflation bias monetary unification boosts the accumulation of public debt the additional debt accumulation harms welfare if governments are sufficiently myopic in the presence of myopic governments debt ceilings play a useful role in avoiding excessive debt accumulation in a monetary union and allowing a conservative independent central bank to focus on price stability with supply shocks monetary unification results in excessive variability of public debt a debt target that constrains stabilization policy helps to prevent this

rules and discretion with noncoordinated monetary and fiscal policies the time inconsistency of optimal monetary policy is due to the effects of tax distortions thus the issue of how to improve upon the time consistent suboptimal monetary policy is related to that of the coordination of monetary and fiscal policy we present a model with three players the central bark the fiscal authority and wage setters in which distortionary taxes are explicitly modelled we show that binding commitments to monetary rules are not necessarily welfare improving if monetary and fiscal policy are not coordinated we also examine the effects of different degrees of independence of the central bank

the monetary policy of the european central bank the first six years of ecb monetary policy are examined using a general framework that allows central bankers to weight differently positive and negative deviations of inflation output and the interest rate from their reference values the empirical analysis on synthetic euro area data suggests that the objective of price stability is symmetric whereas the objectives of real activity and interest rate stabilizations are not output contractions imply larger policy responses than output expansions of the same size while movements in the interest rate are larger when the level of the interest rate is relatively high the hypothesis of m3 growth rate targeting is rejected

the inflation bias when the central bank targets the natural rate of unemployment abstract this paper studies the proposition that an inflation bias can arise in a setup where a central banker with asymmetric preferences targets the natural unemployment rate preferences are asymmetric in the sense that positive unemployment deviations from the natural rate are weighted more or less severely than negative deviations in the central banker s loss function the bias is proportional to the conditional variance of unemployment the time series predictions of the model are evaluated using data from g7 countries econometric estimates support the prediction that the conditional variance of unemployment and the rate of inflation are positively related

are monetary policy reaction functions asymmetric the role of nonlinearity in the phillips curve abstract this paper investigates the implications of a nonlinear phillips curve for the derivation of optimal monetary policy rules combined with a quadratic loss function the optimal policy is also nonlinear with the policy maker increasing interest rates by a larger amount when inflation or output are above target than the amount it will reduce them when they are below target specifically the main prediction of our model is that such a source of nonlinearity leads to the inclusion of the interaction between expected inflation and the output gap in an otherwise linear taylor rule we find empirical support for this type of asymmetries in the interest rate setting behaviour of four european central banks but none for the us fed

the allocation of seigniorage in a common currency area this paper considers the allocation of seigniorage in a common currency area with an independent central bank it is shown that if the central bank retains autonomy in the allocation of seigniorage inflation will be suboptimally high and taxes and government spending will be suboptimally low constitutionally mandating the rate of money growth will result in optimal inflation but taxes and government spending will be too low as long as consumers do not put too much weight on public good consumption relative to private it is better to constitutionally mandate seigniorage allocation shares than the level of money growth

does the barro gordon model explain the behavior of us inflation a reexamination of the empirical evidence abstract this paper tests the predictions of the barro gordon model using us data on inflation and unemployment to that end it constructs a general game theoretical model with asymmetric preferences that nests the barro gordon model and a version of cukierman s model as special cases likelihood ratio tests indicate that the restriction imposed by the barro gordon model is rejected by the data but the one imposed by the version of cukierman s model is not reduced form estimates are consistent with the view that the federal reserve weights more heavily positive than negative unemployment deviations from the expected natural rate

inflation targeting under asymmetric preferences 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 uk are statistically different from the one implied by the commonly used quadratic loss function

robust monetary policy structural breaks and nonlinearities in the reaction function of the central bank of brazil abstract in this work we seek to investigate the existence of nonlinearities in the reaction function of the central bank of brazil arising from this policymaker s uncertainties about the effects of the output gap on inflation theoretically we follow tillmann 2011 to obtain a nonlinear optimal monetary policy rule that is robust to uncertainty about the output inflation trade off of the phillips curve in addition we perform structural break tests to assess possible changes in the conduct of the brazilian monetary policy during the inflation targeting regime the results indicate that i the uncertainties about the slope in the phillips curve implied nonlinearities in the central bank of brazil s reaction function ii we cannot reject the hypothesis of a structural break in the monetary rule parameters occurring in the third quarter of 2003 iii there was an increase in the response of the selic rate to output gap and a weaker response to the current inflation gap in meirelles tombini s administration and iv the central bank of brazil has also reacted to the exchange rate in meirelles tombini s administration

robust monetary policy in a small open economy abstract we study how a central bank in a small open economy should conduct monetary policy if it fears that its model is misspecified using a new keynesian model of a small open economy we solve analytically for the optimal robust policy rule and the equilibrium dynamics and we separately analyze the consequences of central bank robustness against misspecification concerning the determination of inflation output and the exchange rate we show that an increase in the preference for robustness makes the central bank respond more aggressively or more cautiously to shocks depending on the type of shock and the source of misspecification

loss of monetary discretion in a simple dynamic policy game abstract we analyze a simple policy game featuring monetary credibility problems and argue that loss of monetary discretion is not advantageous two elements form the basis of our analysis firstly we endogenize the source of credibility problems and secondly we consider a dynamic framework where credibility problems are not time invariant by doing this we are able to demonstrate that credibility problems are temporary and in steady state the government has removed these through sound policies a binding policy rule will only serve as an obstacle towards this steady state

optimal interest rate smoothing this paper considers the desirability of the observed tendency of central banks to adjust interest rates only gradually in response to changes in economic conditions it shows in the context of a simple model of optimizing private sector behaviour that assignment of an interest rate smoothing objective to the central bank may be desirable even when reduction of the magnitude of interest rate changes is not a social objective in itself this is because a response of policy to irrelevant lagged variables may be desirable owing to the way it steers private sector expectations of future policy

optimal monetary policy with a nonlinear phillips curve abstract the analysis of optimal discretionary monetary policy under a non linear phillips curve is shown to yield results that are in marked contrast to conventional results that are drawn from the linear paradigm specifically we show that there exists a deflation bias in expected output while the inflation bias cannot be signed preference uncertainty however adds to expected inflation

government finance in a common currency area abstract european integration in 1992 may require greater exchange rate coordination thatn currently exists the delors report goes as far as to recommend the eventual adoption of a single currency however the formation of a common currency area raises fears that independent fiscal policies may produce inferior outcomes this paper shows that lack of cooperation in fiscal policy leads to too little inflation too high taxes and too much government spending jel f33

estimating the linear quadratic inventory model maximum likelihood versus generalized method of moments abstract we compare generalized method of moments gmm and maximum likelihood ml estimators of the parameters of a linear quadratic inventory model using nondurable manufacturing data and monte carlo simulations data based gmm estimates for five normalizations vary widely generally rejecting the model the ml estimate generally supports the model monte carlo experiments reveal that the gmm estimates are often biased apparently due to poor instruments statistically insignificant economically implausible and dynamically unstable the ml estimates are generally unbiased even in misspecified models statistically significant economically plausible and dynamically stable asymptotic standard errors for ml are 3 to 15 times smaller than for gmm

term structure evidence on interest rate smoothing and monetary policy inertia abstract numerous studies have used quarterly data to estimate monetary policy rules or reaction functions that appear to exhibit a very slow partial adjustment of the policy interest rate the conventional wisdom asserts that this gradual adjustment reflects a policy inertia or interest rate smoothing behavior by central banks however such quarterly monetary policy inertia would imply a large amount of forecastable variation in interest rates at horizons of more than 3 months which is contradicted by evidence from the term structure of interest rates the illusion of monetary policy inertia evident in the estimated policy rules likely reflects the persistent shocks that central banks face

central bank independence and monetary control ing from details these conclusions imply that inflation is lower the higher is cbi and that given independence countries that pre announce monetary policy have even lower rates of inflation furthermore there is no evidence that cbi retards growth or investment as a matter of fact for ldcs the evidence points in the opposite direction low independence is associated with lower growth and investment some economists feel that excessive independence may interfere with the potential stabilisatory function of monetary policy since fluctuations in the growth rate of the economy are found to be unrelated to cbi this does not appear to be the case iii commitment via central bank independence and

fiscal policy coordination and emu a dynamic game approach abstract this paper examines the case for fiscal policy coordination in a european economic and monetary union emu a two bloc model with two market structures is examined emu producing a single homogeneous good in both blocs emu1 and a two good emu emu2 where each bloc produces a single home good the european central bank sets monetary policy so as to achieve credibly low inflation rates we find that for emu2 as relative prices can change countries have an incentive to improve their terms of trade leading to an inefficient noncooperative outcome which can be avoided by cooperation

monetary union without fiscal coordination may discipline policymakers abstract with benevolent policymakers and fiscal leadership monetary unification reduces inflation taxes and public spending these disciplining effects of a monetary union which become stronger if the number of participants in the union increases are likely to raise welfare two types of arrangements are considered for the union s common central bank ccb making the ccb more conservative and imposing an inflation target on the ccb in contrast to the results of svensson 1997 svensson l e o 1997 optimal inflation targets conservative central banks and linear inflation contracts american economic review 87 98 114 an optimally designed conservative ccb may outperform inflation targeting finally we find that fiscal coordination offsets the disciplining effects of monetary unification hence subsidiarity in fiscal policymaking may enhance welfare

estimating technical efficiency of australian dairy farms using alternative frontier methodologies technical efficiency is estimated and examined for a cross section of australian dairy farms using various frontier methodologies bayesian and classical stochastic frontiers and data envelopment analysis the results indicate technical inefficiency is present in the sample data also identified are statistical differences between the point estimates of technical efficiency generated by the various methodologies however the rank of farm level technical efficiency is statistically invariant to the estimation technique employed finally when confidence credible intervals of technical efficiency are compared significant overlap is found for many of the farms intervals for all frontier methods employed the results indicate that the choice of estimation methodology may matter but the explanatory power of all frontier methods is significantly weaker when interval estimate of technical efficiency is examined

the fed s monetary policy rule and u s inflation the case of asymmetric preferences abstract this paper investigates the empirical relevance of a new framework for monetary policy analysis in which the decision makers are allowed but not required to weight differently positive and negative deviations of inflation and output from the target values the estimates of the central bank s euler equation indicate that the preferences of the fed had been asymmetric only before 1979 with the interest rate response to output contractions being larger than the response to output expansions of the same magnitude we show that this asymmetry on output implied an average inflation bias around 1 5 while the implicit inflation target also declined the asymmetric preferences induced inflation bias appears to account for a sizable fraction of the historical decline in the inflation mean

inflation targeting in brazil constructing credibility under exchange rate volatility abstract this paper assesses the challenges faced by the inflation targeting regime in brazil the inflation targeting framework has played a critical role in macroeconomic stabilization we stress two important challenges construction of credibility and exchange rate volatility the estimations indicate the following results i the inflation targets have worked as an important coordinator of expectations ii the central bank has reacted strongly to inflation expectations iii there has been a reduction in the degree of inflation persistence and iv the exchange rate pass through for administered or monitored prices is two times higher than for market prices

testing asymmetries in central bank preferences in a small open economy a study for brazil abstract in this paper we extend surico s 2007a model to an open economy and test if the brazilian central bank s loss function is asymmetric with regard to positive and negative deviations of the output gap and of the inflation rate from its target furthermore we use tests for structural breaks to investigate changes in the conduct of policy and monetary authority s preferences the results revealed that the central bank reacted more strongly to deviations of inflation from the target and the output gap after 2003 with regard to the monetary authority s preferences estimates indicate only an asymmetric preference over an above target inflation rate until mid 2003 after this period the evidence obtained by estimating the reaction function with inflation expectations showed that the central bank has been more averse to positive deviations of inflation from its target