Estimating Central Bank Preferences under Commitment and Discretion

Givens, Gregory Erin

doi:10.1111/j.1538-4616.2012.00522.x

Cited by 41 publications

(19 citation statements)

References 93 publications

(141 reference statements)

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“…Palma and Portugal (2011) used a standard new-Keynesian modelwith forward-looking expectations proposed by Givens (2010) to estimate the monetary authority's preferences in Brazilduring the inflation targeting regime, taking into account a closed economy. 2 Assuming rational expectations, it is necessary tomake a key distinction about how agents' expectations are dealt with in the optimization problem, i.e., by telling commitment and discretion apart.…”

Section: Introduction and Justification For The Studymentioning

confidence: 99%

Preferences of the Central Bank of Brazil under the inflation targeting regime: Estimation using a DSGE model for a small open economy

Palma

Portugal

2014

Journal of Policy Modeling

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Resumo: O objetivo principal deste trabalho é estimar as preferências do Banco Central do Brasil no período pós metas de inflação (janeiro 2000 a junho de 2011), usando um modelo DSGE com fundamentos microeconômicos para uma pequena economia aberta, tomando como base especialmente o trabalho de Kam, Lees e Liu (2009). O modelo utilizado neste trabalho considera que o Banco Central minimiza uma função perda, levando em consideração o desvio da inflação em relação a meta, a estabilização do produto, a suavização da taxa de juros e, distintamente dos trabalhos anteriores, a taxa de câmbio. Os resultados permitem afirmar que a maior preocupação da autoridade monetária no período foi com a estabilização da inflação, seguida pela suavização da taxa de juros, estabilização do produto e, por último, a estabilização da taxa de câmbio. Palavras-chave: política monetária, preferências do Banco Central do Brasil, estimação bayesiana, DSGE.

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Section: Introduction and Justification For The Studymentioning

confidence: 99%

Preferences of the Central Bank of Brazil under the inflation targeting regime: Estimation using a DSGE model for a small open economy

Palma

Portugal

2014

Journal of Policy Modeling

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“… See Favero and Rovelli (2003),Dennis (2006),Surico (2007),Ilbas (2012), andGivens (2012) 8 SeeChappell Jr, Havrilesky, and McGregor (1997) andMeade and Stasavage (2008).9 We demonstrate this point with a simple three-equation New Keynesian model in A.1. The point is demonstrated in more general models inRudebusch and Svensson (1999),Dennis (2006), andSurico (2007) …”

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confidence: 56%

Taking the Fed at its Word: A New Approach to Estimating Central Bank Objectives Using Text Analysis

Shapiro¹,

Wilson²

2021

ERWP

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We propose a new approach to estimating central bank preferences, including the implicit inflation target, that requires no priors on the underlying macroeconomic structure nor observation of monetary policy actions. Our approach entails directly estimating the central bank's objective function from the sentiment expressed by policymakers in their internal meetings. We apply the approach to the objective function of the U.S. Federal Open Market Committee (FOMC). The results challenge two key aspects of conventional wisdom regarding FOMC preferences. First, the FOMC had an implicit inflation target of approximately 1 1 2 percent on average over our baseline 2000-2013 sample period, significantly below the commonly-assumed value of 2. Second, the FOMC's loss depends strongly on output growth and stock market performance and less so on their perception of the current economic slack. * We thank Shelby Buckman, Lily Huang, and Ben Shapiro for superb research assistance and we thank the team of FRBSF research assistants who participated in the human audit study for this paper. We are indebted to Moritz Sudhof for his help with parsing the FOMC text data by speaker and general advice on text analysis. We thank

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“…Using maximum likelihood, Givens () estimates a New Keynesian optimal monetary policy model for the USA. The model is estimated separately under the two alternatives of commitment and discretion, using quarterly data over the Volcker–Greenspan–Bernanke era; a comparison of the log‐likelihood of the two alternative models based on a Bayesian information criterion (to overcome the fact that the two models are nonnested) strongly favors discretion over commitment.…”

Section: Introductionmentioning

confidence: 99%

Testing for optimal monetary policy via moment inequalities

Coroneo

Corradi

Monteiro

2018

J of Applied Econometrics

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Summary The specification of an optimizing model of the monetary transmission mechanism requires selecting a policy regime: commonly, commitment or discretion. In this paper we propose a new procedure for testing optimal monetary policy, relying on moment inequalities that nest commitment and discretion as two special cases. The approach is based on the derivation of bounds for inflation that are consistent with optimal policy under either policy regime. We derive testable implications that allow for specification tests and discrimination between the two alternative regimes. The proposed procedure is implemented to examine the conduct of monetary policy in the US economy.

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Estimating Central Bank Preferences under Commitment and Discretion

Cited by 41 publications

References 93 publications

Preferences of the Central Bank of Brazil under the inflation targeting regime: Estimation using a DSGE model for a small open economy

Preferences of the Central Bank of Brazil under the inflation targeting regime: Estimation using a DSGE model for a small open economy

Taking the Fed at its Word: A New Approach to Estimating Central Bank Objectives Using Text Analysis

Testing for optimal monetary policy via moment inequalities

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