Nunes, Ricardo; Kim, Jinill; Linde, Jesper; Debortoli, … - Society for Economic Dynamics - SED - 2014
Yes. Using the workhorse Smets and Wouters (2007) model of the U.S. economy, we find that the role of the output gap should be equal to or even more important than that of inflation when designing a simple loss function to represenst household welfare. Moreover, we document that a loss function...