Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/73073
Authors: 
Neuenkirch, Matthias
Year of Publication: 
2013
Series/Report no.: 
Joint Discussion Paper Series in Economics 21-2013
Abstract: 
In this paper, we test whether public preferences for price stability (obtained from the Eurobarometer survey) are actually reflected in the interest rates set by eight central banks. We estimate augmented Taylor (1993) rules for the period 1976-1993 using the dynamic GMM estimator. We find, first, that interest rates do reflect society's preferences since the central banks raise rates when society's inflation aversion is above its long-run trend. Second, the reaction to inflation is non-linearly increasing in the degree of inflation aversion. Third, this emphasis on fighting inflation does not have a detrimental effect on output stabilization. We conclude with some implications concerning the democratic legitimation of central banks.
Subjects: 
Central Bank
Democratic Legitimation
Eurobarometer
Inflation Aversion
Monetary Policy
Public Preferences
Taylor Rules
JEL: 
D71
E31
E43
E52
E58
Document Type: 
Working Paper

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