Did asymmetric monetary preferences for the output gap disappear during recent economic times?

Abstract

Surico (2007) showed that the Federal Reserve Bank (FED) asymmetric preferences for the output gap disappeared during recent times. We show that this result is sensitive to the starting date chosen for the regressions. Using a starting date of 1984:01 or later, we find that the hypothesis of the FED exhibiting symmetric preferences is consistently rejected.

Keywords:

• optimal monetary policy
• asymmetric monetary preferences
• post-Volcker period
• GMM

JEL Classification:

• E31
• E52
• E61

Notes

¹  Tables 1 and 2 present only a subset of the empirical output. So here, we leave out the values for c₀ and ρ. Following common convention, we use one asterisk, *, to indicate significance at 5% level but not at 1% level and use two asterisks, **, to indicate significance at 1% level. Standard errors are reported in parenthesis below the parameter estimates.

²  To be more precise, our data set is likely to differ form the one used by Surico (2007) since our data is a thoroughly revised data whereas roughly one-seventh of the last observations of inflation considered by Surico (2007), presumably collected arround the third quarter of 2003, were not revised data at the time they were collected because National Income and Product Accounts variables take approximately 3 years to be fully revised (see Aruoba, 2008; Croushore, 2011, for details on data revisions). Our revised ouput gap time series and the one used by Surico (2007) are also different because the output gap revisions are sizable as documented by Croushore (2011) and references therein.