Are Public Preferences Reflected in Monetary Policy Reaction Functions?

Are Public Preferences Reflected in Monetary Policy Reaction Functions?

In this paper, we test whether public preferences for price stability (obtained from the Eurobarometer survey) are actually reflected in the interest rates set by eight central banks. We estimate augmented Taylor (1993) rules for the period 1976–1993 using the dynamic GMM estimator. We find, first,...

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Veröffentlicht in:MAGKS - Joint Discussion Paper Series in Economics (Band 21-2013)
1. Verfasser: Neuenkirch, Matthias
Format: Artikel
Sprache:Englisch
Veröffentlicht: Philipps-Universität Marburg 2013
Schlagworte:
Wirtschaft
Taylor Rules.
Democratic Legitimation
Public Preferences
Eurobarometer
Central Bank
Inflation Aversion, Monetary Policy
Economics
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Zusammenfassung:In this paper, we test whether public preferences for price stability (obtained from the Eurobarometer survey) are actually reflected in the interest rates set by eight central banks. We estimate augmented Taylor (1993) rules for the period 1976–1993 using the dynamic GMM estimator. We find, first, that interest rates do reflect society’s preferences since the central banks raise rates when society’s inflation aversion is above its long‐run trend. Second, the reaction to inflation is non‐linearly increasing in the degree of inflation aversion. Third, this emphasis on fighting inflation does not have a detrimental effect on output stabilization. We conclude with some implications concerning the democratic legitimation of central banks.
ISSN:1867-3678
DOI:10.17192/es2024.0184

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