The Nonlinear Phillips Curve and Inflation Forecast Targeting - Symmetric Versus Asymmetric Monetary Policy Rules

E. Schaling

    Research output: Working paperDiscussion paperOther research output

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    Abstract

    We extend the Svensson (1997a) inflation forecast targeting framework with a convex Phillips curve. We derive an asymmetric target rule, that implies a higher level of nominal interest rates than the Svensson (1997a) forward looking version of the reaction function popularised by Taylor (1993). Extending the analysis with uncertainty about the output gap, we find that uncertainty induces a further upward bias in nominal interest rates. Thus, the implications of uncertainty for optimal policy are the opposite of standard multiplier uncertainty analysis.
    Original languageEnglish
    Place of PublicationTilburg
    PublisherMacroeconomics
    Number of pages27
    Volume1998-136
    Publication statusPublished - 1998

    Publication series

    NameCentER Discussion Paper
    Volume1998-136

    Fingerprint

    Uncertainty
    Phillips curve
    Inflation forecasts
    Targeting
    Monetary policy rules
    Nominal interest rate
    Multiplier
    Uncertainty analysis
    Reaction function
    Output gap
    Optimal policy

    Keywords

    • inflation targets
    • nonlinearities
    • asymmetries
    • stochastic control

    Cite this

    Schaling, E. (1998). The Nonlinear Phillips Curve and Inflation Forecast Targeting - Symmetric Versus Asymmetric Monetary Policy Rules. (CentER Discussion Paper; Vol. 1998-136). Tilburg: Macroeconomics.
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    abstract = "We extend the Svensson (1997a) inflation forecast targeting framework with a convex Phillips curve. We derive an asymmetric target rule, that implies a higher level of nominal interest rates than the Svensson (1997a) forward looking version of the reaction function popularised by Taylor (1993). Extending the analysis with uncertainty about the output gap, we find that uncertainty induces a further upward bias in nominal interest rates. Thus, the implications of uncertainty for optimal policy are the opposite of standard multiplier uncertainty analysis.",
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    Schaling, E 1998 'The Nonlinear Phillips Curve and Inflation Forecast Targeting - Symmetric Versus Asymmetric Monetary Policy Rules' CentER Discussion Paper, vol. 1998-136, Macroeconomics, Tilburg.

    The Nonlinear Phillips Curve and Inflation Forecast Targeting - Symmetric Versus Asymmetric Monetary Policy Rules. / Schaling, E.

    Tilburg : Macroeconomics, 1998. (CentER Discussion Paper; Vol. 1998-136).

    Research output: Working paperDiscussion paperOther research output

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    KW - asymmetries

    KW - stochastic control

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