Working Paper: CEPR ID: DP3687
Authors: Stefan Gerlach
Abstract: This Paper explores the relationship between the Kydland-Prescott Barro-Gordon model and models with asymmetric policy preferences. While both yield an inflation bias, recession aversion dampens the output effects of contractionary supply shocks. Some inflation may therefore reflect policy preferences.
Keywords: asymmetric policy reactions; inflation bias; reaction functions
JEL Codes: E31; E50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| recession aversion (E71) | average inflation rate (E31) |
| KPBG model (C54) | positive average inflation rate (E31) |
| recession aversion (E71) | positive average inflation rate (E31) |
| asymmetric reactions to economic shocks (F41) | inflation bias (E31) |
| recession aversion (E71) | inflation bias (E31) |