Testing for Asymmetries in the Preferences of the Euro-Area Monetary Policymaker (FEP Working Paper Nº 182, Faculdade de Economia da Universidade do Porto, Julho 2005)

• Type: Technical Report
• Date: 2005

Authors

Álvaro Aguiar (Author) FEP; Manuel Mota Freitas Martins (Author) FEP

Scientific classification

FOS: Social sciences > Economics and Business

CORDIS: Social sciences > Economics

Other information

Abstract (EN): This paper tests for asymmetries in the preferences of the Euro-Area monetary policymaker with 1995:I-2005:II data from the last update of the ECB's Area-wide database. Following the relevant literature, we distinguish between three types of asymmetry: precautionary demand for expansions, precautionary demand for price stability and interest rate smoothing asymmetry. Based on the joint GMM estimation of the Euler equation of optimal policy and the AS-AD structure of the macroeconomy, we find evidence of precautionary demand for price stability in the preferences revealed by the monetary policymaker. This type of asymmetry is consistent with the ECB’s definition of price stability and with the priority of credibility-building by a recently created monetary authority.

Language: English

Type (Professor's evaluation): Scientific

Reference: http://www.fep.up.pt/investigacao/workingpapers/05.07.18_wp182_manelalvaro.pdf

No. of pages: 34