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Author: | Dolado, J. J. Maria-Dolores, R. Naveira, M. |
Title: | Are monetary-policy reaction functions asymmetric? The role of nonlinearity in the Phillips curve |
Journal: | European Economic Review
2005 : FEB, VOL. 49:2, p. 485-503 |
Index terms: | Monetary policy |
Freeterms: | Taylor rules Nonlinearities |
Language: | eng |
Abstract: | This paper investigates the implications of a nonlinear Phillips curve for the derivation of optimal monetary policy rules. Combined with a quadratic loss function, the optimal policy is also nonlinear, with the policy-maker increasing interest rates by a larger amount when inflation or output are above target than the amount it will reduce them when they are below target. |
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