Motivated by a central banker with a symmetric inflation zone target, we assume in this letter that the loss function of a policy maker can be approximated by the quartic form. For non-normal distributions, we show that such a loss function implies a systematic inflation bias even when the bank...

Given conflicting results on whether the US monetary policy rule exhibited nonlinearity in the post-war period we employ a new Granger non-causality nonlinearity test and non-parametric procedures to re-examine the issue. Both procedures suggest that the Fed followed a nonlinear Taylor rule with...

Motivated by a central banker with a symmetric but non-quadratic loss function, we show in this note that the approximations of two plausible loss functions of this type will include a quartic term. For skewed distributions, we establish that such a loss function implies a systematic inflation...

Motivated by a central banker with a symmetric but non-quadratic loss function, we show in this note that the approximations of two plausible loss functions of this type will include a quartic term. For skewed distributions, we establish that such a loss function implies a systematic inflation...

It is well known that the parametric version of Cumulative Prospect theory (CPT) proposed by Kahneman and Tversky (1979) and Tversky and Kahneman (1992) (KT) can explain gambling at actuarially unfair odds on long shots due to the over weighting of small probabilities. However betting on odds...

It is well known that the parametric version of Cumulative Prospect theory (CPT) proposed by Kahneman and Tversky (1979) and Tversky and Kahneman (1992) (KT) can explain gambling at actuarially unfair odds on long shots due to the over weighting of small probabilities. However betting on odds...

This paper reviews the relationship between Central Bank Independence (CBI) and Inflation both in high income economies (as proposed in Campillo and Miron 1997 and Temple 1998) and in developing countries (as proposed in Brumm 2006)1 when a variety of Heteroskedasticity Consistent Covariance...

We investigate the nature of the inflation bias in a model that exhibits asymmetries in preferences and non–normality in shocks but simplifies to the classic Barro-Gordon problem as a special case. The inflation bias is shown to depend on the trade-off between preference, structural and...