What Does Monetary Policy Reveal About Central Bank's Preferences?

28 Pages Posted: 7 Feb 2002

See all articles by Paolo Surico

Paolo Surico

London Business School - Department of Economics; Centre for Economic Policy Research (CEPR)

Efrem Castelnuovo

University of Melbourne - Department of Economics

Date Written: January 2002

Abstract

The design of monetary policy depends upon the targeting strategy adopted by the central bank. This strategy describes a set of policy preferences, which are actually the structural parameters to analyse monetary policy making. Accordingly, we develop a novel calibration method to identify central bank's preferences from the estimates of an optimal Taylor-type rule. The empirical analysis on US data shows that output stabilization has not been an independent argument in the Fed's objective function during the Greenspan era. This suggests that the output gap has entered the policy rule only as leading indicator for future inflation, therefore being only instrumental (to stabilize inflation) rather than important per se.

Keywords: Central bank's preferences, calibration, inflation targeting, optimal monetary policy

JEL Classification: C61, E52, E58

Suggested Citation

Surico, Paolo and Castelnuovo, Efrem, What Does Monetary Policy Reveal About Central Bank's Preferences? (January 2002). FEEM Working Paper No. 2.2002. Available at SSRN: https://ssrn.com/abstract=299621 or http://dx.doi.org/10.2139/ssrn.299621

Paolo Surico (Contact Author)

London Business School - Department of Economics ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

HOME PAGE: http://sites.google.com/site/paolosurico

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

HOME PAGE: http://sites.google.com/site/paolosurico

Efrem Castelnuovo

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

HOME PAGE: http://https://sites.google.com/site/efremcastelnuovo/home

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