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

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28/01/2003

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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.