Designing a Simple Loss Function for Central Banks: Does a Dual Mandate Make Sense?

• 成果类型: Article
• 署名作者: Debortoli, Davide; Kim, Jinill; Linde, Jesper; Nunes, Ricardo
• 署名单位: Pompeu Fabra University; Centre de Recerca en Economia Internacional (CREI); Barcelona School of Economics; Korea University; Sveriges Riksbank; Center for Economic & Policy Research (CEPR); University of Surrey
• 刊物名称: ECONOMIC JOURNAL
• ISSN/ISSBN: 0013-0133
• DOI: 10.1111/ecoj.12630
• 发表日期: 2019
• 页码: 2010-2038
• 关键词: optimal monetary-policy; staggered prices; inflation; rules; MODEL; rigidities; wage

摘要

Yes, a dual mandate makes a lot of sense. This article studies how to design simple loss functions for central banks, as parsimonious approximations to social welfare. We show, both analytically and quantitatively, that simple loss functions should feature a high weight on measures of economic activity, sometimes even larger than the weight on inflation. Two main factors drive our result. First, stabilising economic activity also stabilises other welfare-relevant variables. Second, the estimated model features mitigated inflation distortions due to a low elasticity of substitution between monopolistic goods and a low interest rate sensitivity of demand. The result holds up in the presence of measurement errors, with large shocks that generate a trade-off between stabilising inflation and resource utilisation, and also when imposing a moderate degree of interest rate volatility.