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)



Table 7: Inflation Mean and its Components

1960:1 -1979:2

1982:4 2003:2

Average Inflation Bias

1.11**

0.32

(0.12)

(0.48)

Inflation Target

3.61**

2.77**

(0.31)

(0.25)

Model-Based

4.72**

3.09**

Inflation Mean

(0.26)

(0.50)

Actual Inflation Mean

4.5

2.8

-

-

Standard Deviation              2.7                        2.1

of the Output Gap                -                          -

Model-based inflation mean: E(π ) = π * - —σ2 = π * - γ2
v t,          c 1 y          2κ y

Notes: Standard errors in brackets. The average inflation bias, which is defined as
the difference between the model-based average inflation and the inflation target, is
recovered from the estimates of the interest rate reaction function reported in Table 6
as (
-c4 σy2∕c1 ). The standard errors are obtained using the delta method. The superscript
** and * denote the rejection of the null hypothesis that the true coefficient is zero at
the 1 percent and 5 percent significance levels, respectively.

28



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