You are here

Asymmetric central bank preferences and inflation rate in Tunisia

Journal Name:

Publication Year:

Author NameFaculty of Author
Abstract (2. Language): 
This article fits into the new strand of literature related to the asymmetric central bank preferences and its effect on the inflation dynamic. In reality, the central banker preferences are more likely to be asymmetric. Central banker can be, for various reasons, more averse toward deviations from target with one sign more than deviations from target with the other sign. The interaction of asymmetric central bank preferences with uncertainty arising from the volatility of inflation and output may affect the inflation movements. This paper aims to check the hypothesis that asymmetric central bank preferences are able to explain inflation rate for the case of Tunisia and to understand Central Bank of Tunisia preferences toward inflation rate and output during the period ranging from 1993 to 2010. We refer to a standard monetary model that includes asymmetric loss function and a linear supply curve which acts as a constraint on the central bank behavior. The results show that the inflation rate depends on the output gap and on the conditional variance of inflation and provide evidence for asymmetric central bank preferences. The Central Bank of Tunisia seems to be more averse to high inflation which is consistent with its ultimate goal explicitly announced to preserve price stability.
588-596

REFERENCES

References: 

[1] R. Barro and D.Gordon, “Rules, Discretion and Reputation In A Model Of Monetary Policy” Journal Of Monetary
Economics, pp 101-121, 1983.
[2] J.B. Taylor, “Discretion versus Policy Rules in Practice”, Carnegie-Rochester Conference Series on Public Policy, 39, pp
195–214, 1993.
[3] A. Cukierman, “The Inflation Bias Result Revisited”, Berglas School of Economics, Tel-Aviv University, 2000.
[4] F.J. Ruge-Murcia, “Inflation Targeting under Asymmetric Preference”, Journal of Money, Credit, and Banking, Vol. 35,
No. 5, 2003a.
[5] D. Kahneman and A. Tversky, “Prospect Theory: An Analysis of Decision under Risk”, Econometrica, Vol. 47, No. 2, pp.
263-292, 1979.
[6] A. Blinder, “Central Banking in Theory and Practice”, MIT Press, Cambridge, 1998.
[7] C.A.E Goodhard, “Central bankers and uncertainty”, Bank of England Quarterly Bulletin, vol. 39 (1), pp. 102-121, 1999.
[8] W. Brainard, “Uncertainty and The Effectiveness of Policy”, American Economic Review, vol 57, pp. 411-425, 1967.
[9] A. Greenspan, “Monetary Policy Under Uncertainty”, paper presented at a symposium sponsored by the Federal
Reserve Bank of Kansas City, Jackson Hole, WY, 2003.
[10] A. Blinder, “Distinguished Lecture on Economics and Government: What Central Bankers Could Learn from Academics
and Viceversa”, Journal of Economic Perspective, vol. 11, pp.3-19, 1997.
[11] J. Chadha and P. Schellekens, “Monetary Policy Loss Functions: Two Cheers for The Quadratic”, Bank of England,
[12] 1A9.R9.9 .N obay and D.A. Peel, “Optimal Discretionary Monetary Policy in a Model of Asymmetric Central Bank
Preferences”, Economic Journal, vol. 113, pp 657–65, 2003.
[13] P. Surico, “Measuring the Time Inconsistency of US Monetary Policy”, Economica, vol. 75, pp 22–38, 2008.
[14] J. Dolado, R. Maria-Dolores and F.J. Ruge-Murcia, “Non-linear Monetary Policy Rules: Some New Evidence for the US,
Studies in Non-Linear Dynamics and Econometrics, vol. 8, pp 1–32. 2004.
[15] P. Surico, “The Fed’s Monetary Policy Rule and U.S. Inflation: The Case of Asymmetric Preferences”, Journal of
Economic Dynamics & Control, vol. 31, pp 305–324, 2007.
[16] A. Aguiar, and M.F Martins, “Testing for Asymmetries in The Preferences of The euro Area Monetary Policymaker”,
Applied Economics, vol. 40(13), pp. 1651-1667, 2008.
[17] F.J. Ruge-Murcia, “Does the Barro–Gordon Model Explain The Behavior of US Inflation? A Reexamination of The
Empirical Evidence”, Journal of Monetary Economics, vol, 50, pp 1375–1390, 2003b.
[18] F.J. Ruge-Murcia, “The Inflation Bias When the Central Bank Targets the Natural Rate of Unemployment”, European
Economic Review, 48, pp 91–107, 2004.
[19] O. Sweidan, “Asymmetric Central Bank’s Preference and Inflation Rate in Jordan”, Studies in Economics and Finance,
Vol. 26, No. 4, pp 232-245, 2009.
[20] M. Doyle and B. Falk, “Do Asymmetric Central Bank Preferences Help Explain Observed Inflation Outcomes?”, Journal
of Macroeconomics, vol. 32, pp. 527–540, 2010.
[21] H. Miniaoui and M. Smida, “ Crédibilité des autorités monétaires et transparence - quelle complémentarité dans le
cas de la Tunisie? Une contribution au débat”, L’Actualité Economique, vol 84, issue 2, pp 205-234, 2008.
[22] Z. Chrigui, Y. Boujelbène and G. Mhamdi, “Central Bank Independence and Inflation: Evidence From Emerging
Countries”, Journal of Policy Modeling, 2010.
[23] K. Knight, “Mathematical Statistics”, 1st ed., Chapman and Hall/CRC, Boca Raton, FL, 2000.

Thank you for copying data from http://www.arastirmax.com