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Designing a Simple Loss Function for Central Banks

2017-07-21 Business & Economics
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Release : 2017-07-21
Genre : Business & Economics
Kind : eBook
Book Rating : 752/5 ( reviews)

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Book Synopsis Designing a Simple Loss Function for Central Banks by : Davide Debortoli

Download or read book Designing a Simple Loss Function for Central Banks written by Davide Debortoli. This book was released on 2017-07-21. Available in PDF, EPUB and Kindle. Book excerpt: Yes, it makes a lot of sense. This paper 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, stabilizing economic activity also stabilizes 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 stabilizing inflation and resource utilization, and also when ensuring a low probability of hitting the zero lower bound on interest rates.

The Making of Optimal and Consistent Policy

2008
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Release : 2008
Genre :
Kind : eBook
Book Rating : /5 ( reviews)

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Book Synopsis The Making of Optimal and Consistent Policy by : Huiping Yuan

Download or read book The Making of Optimal and Consistent Policy written by Huiping Yuan. This book was released on 2008. Available in PDF, EPUB and Kindle. Book excerpt: This paper shows that optimal policy and consistent policy outcomes require the use of control-theory and game-theory solution techniques. While optimal policy and consistent policy often produce different outcomes even in a one-period model, we analyze consistent policy and its outcome in a simple model, finding that the cause of the inconsistency with optimal policy traces to inconsistent targets in the social loss function. As a result, the social loss function cannot serve as a direct loss function for the central bank. Accordingly, we employ implementation theory to design a central bank loss function (mechanism design) with consistent targets, while the social loss function serves as a social welfare criterion. That is, with the correct mechanism design for the central bank loss function, optimal policy and consistent policy become identical. In other words, optimal policy proves implementable (consistent).

Capitalizing Central Banks

2005-01-01 Business & Economics
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Release : 2005-01-01
Genre : Business & Economics
Kind : eBook
Book Rating : 34X/5 ( reviews)

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Book Synopsis Capitalizing Central Banks by : Mr.Alain Ize

Download or read book Capitalizing Central Banks written by Mr.Alain Ize. This book was released on 2005-01-01. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides a simple, quantitative, net worth-based, approach to assessing the need for central bank capital. It derives a concept of "core capital" (a function of the central bank's operating expenditures and the carrying cost of its international reserves) as the minimum capital needed by a central bank to ensure the credibility of its inflation target. The approach is illustrated with the published accounts of three loss-making central banks and selected accounting entries for a broader sample of central banks. Policy implications are explored. In particular, the paper argues that central bank capitalizations cannot be automatic and require instead a broad policy debate.

The Federal Reserve System Purposes and Functions

2002 Banks and Banking
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Release : 2002
Genre : Banks and Banking
Kind : eBook
Book Rating : 967/5 ( reviews)

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Book Synopsis The Federal Reserve System Purposes and Functions by : Board of Governors of the Federal Reserve System

Download or read book The Federal Reserve System Purposes and Functions written by Board of Governors of the Federal Reserve System. This book was released on 2002. Available in PDF, EPUB and Kindle. Book excerpt: Provides an in-depth overview of the Federal Reserve System, including information about monetary policy and the economy, the Federal Reserve in the international sphere, supervision and regulation, consumer and community affairs and services offered by Reserve Banks. Contains several appendixes, including a brief explanation of Federal Reserve regulations, a glossary of terms, and a list of additional publications.

Would it be Optimal for Central Banks to Include Asset Prices in Their Loss Function?

2001
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Release : 2001
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Book Synopsis Would it be Optimal for Central Banks to Include Asset Prices in Their Loss Function? by : Alain Durré

Download or read book Would it be Optimal for Central Banks to Include Asset Prices in Their Loss Function? written by Alain Durré. This book was released on 2001. Available in PDF, EPUB and Kindle. Book excerpt:

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