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The Central Bank Loss Function and Quantitative Easing as a Stackelberg Game

In: Quantitative Easing and Its Impact in the US, Japan, the UK and Europe

Author

Listed:
  • Kjell Hausken

    (University of Stavanger)

  • Mthuli Ncube

    (Office of the Chief Economist African Development Bank Group
    Graduate School of Business Administration, University of the Witwatersrand)

Abstract

The central bank loss function implies that the central bank’s benefit of QE is that of reputation enhancement of controlled inflation and strong economic growth. The loss function is quadratic capturing the deviation of the actual inflation and actual GDP from their socially desirable targets. The loss function at any time t is given by L t = 1 2 π t − π * 2 + θ y t − y * 2 , $$ {L}_t=\frac{1}{2}\left[{\left({\pi}_t-{\pi}^{*}\right)}^2+\theta {\left({y}_t-{y}^{*}\right)}^2\right], $$

Suggested Citation

  • Kjell Hausken & Mthuli Ncube, 2013. "The Central Bank Loss Function and Quantitative Easing as a Stackelberg Game," SpringerBriefs in Economics, in: Quantitative Easing and Its Impact in the US, Japan, the UK and Europe, edition 127, chapter 0, pages 7-11, Springer.
    • Handle: RePEc:spr:spbchp:978-1-4614-9646-5_3
    DOI: 10.1007/978-1-4614-9646-5_3
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