DP3687 | Recession Aversion, Output and the Kydland-Prescott Barro-Gordon Model

Author(s)

Stefan Gerlach

Publication Date

28/01/2003

JEL Code(s)

  • E31, E50

Keyword(s)

  • Asymmetric policy reactions, Inflation Bias, Reaction functions

Programme Area(s)

  • International Macroeconomics

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.