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

25 Pages Posted: 26 Nov 2003

See all articles by Efrem Castelnuovo

Efrem Castelnuovo

University of Melbourne - Department of Economics

Paolo Surico

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

Abstract

The design of monetary policy depends on 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 calibration method to estimate a 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's 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.

JEL Classification: C61, E52, E58

Suggested Citation

Castelnuovo, Efrem and Surico, Paolo, What Does Monetary Policy Reveal About a Central Bank's Preferences?. Economic Notes, Vol. 32, pp. 335-359, November 2003. Available at SSRN: https://ssrn.com/abstract=465536

Efrem Castelnuovo

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

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

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

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