Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/83926
Authors: 
Minford, Patrick
Srinivasan, Naveen
Year of Publication: 
2008
Series/Report no.: 
Cardiff Economics Working Papers E2008/5
Abstract: 
A recent paper by Ruge-Murcia [European Economic Review 48 (2004), 91-107] on asymmetric central bank objectives provides a new perspective on the policy roots of inflation in developed economies. More precisely, the paper demonstrates that if the distribution of the supply shocks is normal, then the reduced form solution for inflation implies a positive (or negative) relation between average inflation and the variance of shocks. We argue that the evidence offered in support of this hypothesis suffers from lack of identification because Phillips curve nonlinearity combined with quadratic central bank preferences yield the same reduced form solution for inflation. If so, estimating reduced form for inflation will not be able to discriminate between these models. Yet they have quite different implications for policy. Other, structural, evidence is needed.
Subjects: 
Preference asymmetry
Phillips curve nonlinearity
Identification
JEL: 
E52
E58
E61
Document Type: 
Working Paper

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