Journal Description Editorial Committee How to Subscribe Forthcoming Articles Staff Papers Archive Copyright Information Research at the IMF Free Email Notification Receive emails when we post new
items of interest to you.
|
|
|
|
A Prudent Central Banker Francisco J. Ruge-Murciá Full Text of this Article (PDF 76K) Abstract:
This paper studies the role of prudence in modern central banking. To that end, it relaxes the usual assumption of quadratic preferences and adopts instead an asymmetric preference specification whereby positive deviations from a target can be weighted more, or less, severely than negative deviations. It is shown that prudence with respect to inflation (unemployment) reduces (increases) equilibrium inflation. The overall effect depends on the relative magnitude of the preference parameters and the conditional variances of inflation and unemployment. The implications of the model are examined using cross-section data from OECD countries.
.
|
