Inflation Targeting and Nonlinear Policy Rules: The Case of Asymmetric Preferences (new title: The Fed's monetary policy rule and U.S. inflation: The case of asymmetric preferences)

Altogether, this paper provides empirical support for asymmetric preferences and suggests
some caution about using symmetric loss functions as a guide to policy analysis. Promising
strands of the literature have recently emphasized that political pressures, labor market fric-
tions and heterogeneity in portfolio holdings can make the costs of business fluctuations and
inflation variation asymmetric. Along these lines, a stimulating avenue for future research is
to derive an utility-based welfare function within richer models of the business cycle in order
to provide a formal microfoundation for an asymmetric central bank objective.

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