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

Author(s): Stefan Gerlach
Publication Date: January 2003
Keyword(s): asymmetric policy reactions, inflation bias, reaction functions
JEL(s): E31, E50
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3687

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.