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Monetary policy loss functions: two cheers for the quadratic

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  • Jagjit Chadha
  • Philip Schellekens

Abstract

The implications for optimal monetary policy of relaxing the normal assumption of a quadratic loss function are examined. Several alternative specifications are considered, but the results suggest that the convenient assumption of quadratic losses may not be that drastic.

Suggested Citation

  • Jagjit Chadha & Philip Schellekens, 1999. "Monetary policy loss functions: two cheers for the quadratic," Bank of England working papers 101, Bank of England.
    • Handle: RePEc:boe:boeewp:101
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    File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/1999/wp101.pdf
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    References listed on IDEAS

    as
    1. Horowitz, Ann R., 1987. "Loss functions and public policy," Journal of Macroeconomics, Elsevier, vol. 9(4), pages 489-504.
    2. Svensson, Lars E. O., 1997. "Inflation forecast targeting: Implementing and monitoring inflation targets," European Economic Review, Elsevier, vol. 41(6), pages 1111-1146, June.
    3. James Tobin, 1989. "On the Theory of Macroeconomic Policy," Cowles Foundation Discussion Papers 931, Cowles Foundation for Research in Economics, Yale University.
    4. Shiller, Robert J., 1999. "Human behavior and the efficiency of the financial system," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 20, pages 1305-1340, Elsevier.
    5. repec:cup:etheor:v:13:y:1997:i:6:p:808-17 is not listed on IDEAS
    6. Christoffersen, Peter F. & Diebold, Francis X., 1997. "Optimal Prediction Under Asymmetric Loss," Econometric Theory, Cambridge University Press, vol. 13(6), pages 808-817, December.
    7. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244.
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    More about this item

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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