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The Asymmetric Loss Function and the Central Banks' Ability in Developing Countries

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  • Osama Sweidan

Abstract

This paper seeks to develop a theoretical strand of research in monetary economics by modelling central bank ability in the loss function. Recently, many working papers issued by the International Monetary Fund (IMF) prove that some central banks, particularly from developing countries, are suffering from serious operational problems that might affect their abilities to control the economy. Simultaneously, a literature review shows that the movements are toward using asymmetric loss function. Therefore, we utilize this function in the standard monetary approach. The results proved that both central bank ability and preference in developing countries are fundamental to explain inflation bias and the movement of monetary policy instrument.

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  • Osama Sweidan, 2008. "The Asymmetric Loss Function and the Central Banks' Ability in Developing Countries," Global Economic Review, Taylor & Francis Journals, vol. 37(3), pages 387-403.
    • Handle: RePEc:taf:glecrv:v:37:y:2008:i:3:p:387-403
    DOI: 10.1080/12265080802273364
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    1. CHADHA, Jagjit & SCHELLEKENS, Philip, "undated". "Monetary policy loss functions: two cheers for the quadratic," Working Papers 1999002, University of Antwerp, Faculty of Business and Economics.
    2. Doyle, Matthew & Falk, Barry, 2010. "Do asymmetric central bank preferences help explain observed inflation outcomes?," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 527-540, June.
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    6. Mr. Alfredo Mario Leone, 1993. "Institutional and Operational Aspects of Central Bank Losses," IMF Policy Discussion Papers 1993/014, International Monetary Fund.
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    8. Lars E. O. Svensson, 2002. "Monetary policy and real stabilization," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 261-312.
    9. Mr. Peter Stella, 1997. "Do Central Banks Need Capital?," IMF Working Papers 1997/083, International Monetary Fund.
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    11. Mr. George A Mackenzie & Mr. Peter Stella, 1996. "Quasi-Fiscal Operations of Public Financial Institutions," IMF Occasional Papers 1996/008, International Monetary Fund.
    12. Mr. Marc G Quintyn, 1994. "Government Securities Versus Central Bank Securities in Developing Open Market Operations: Evaluation and Need for Coordinating Arrangements," IMF Working Papers 1994/062, International Monetary Fund.
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    Cited by:

    1. Sweidan, Osama D., 2011. "Inflation variability between central bank's preferences and the structure of the economy: A note," Economic Modelling, Elsevier, vol. 28(1), pages 630-636.
    2. Osama D. Sweidan, 2009. "Asymmetric central bank's preference and inflation rate in Jordan," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 26(4), pages 232-245, October.
    3. Bruno Ferreira Frascaroli & Wellington Charles Lacerda Nobrega, 2019. "Inflation Targeting and Inflation Risk in Latin America," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(11), pages 2389-2408, September.

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