Does the Barro–Gordon model explain the behavior of US inflation? A reexamination of the empirical evidence

Abstract

RÉSUMÉCe papier teste les prédictions du modèle de Barro-Gordon en utilisant les données américaines sur l'inflation et le chômage. Pour ce faire, il construit un modèle de jeu théorique général avec des préférences asymétriques qui englobe le modèle de Barro-Gordon et une version du modèle de Cukierman qui sont des cas spéciaux. Les tests du rapports de vraisemblance indiquent que la restriction imposée par le modèle de Barro-Gordon est rejetée par les données, mais celle imposée par la version du modèle de Cukierman ne l'est pas. Les estimations sous la forme réduite sont cohérentes avec l'idée selon laquelle la Réserve fédérale accorde une plus grande importance aux déviations positives qu'aux déviations négatives du chômage par rapport au taux naturel espéré.

Time variation in an optimal asymmetric preference monetary policy model

“…By focusing on short term results, it is possible that the policy maker pursues policies which create surprise inflation. This inflation bias result has been explored in numerous empirical studies including Ireland (1999), Ruge-Murcia (2003, 2004 and others. Although Ruge-Murcia (2003, 2004 showed that the Barro and Gordon style inflation bias is not supported by the data, he did show that an inflation bias arising from asymmetric monetary authority preferences is.…”

“…We show that for larger coefficient variation settings the mean value of the coefficient decreases. Although this implies that the mean value of the coefficient becomes statistically insignificant, it is important to stress that it does not imply that the asymmetric monetary planner preference hypothesis suggested in Ruge-Murcia (2003) is invalid because the time varying parameter is still tied to the conditional unemployment variance. What our results do show is that time variation could account for the range of parameter estimates tied to the conditional unemployment volatility found in the literature.…”

“…1 This paper considers a time varying parameter extension of the Ruge-Murcia (2003, 2004 model to explore whether some of the variation in parameter estimates seen in the literature could arise from this source. A time varying value for the unemployment volatility parameter can be motivated through several means.…”

“…section 2 provides a brief description of the empirical model with asymmetric central banker preferences suggested by Ruge-Murcia (2003) and the simple extension of considering a time varying coefficient associated with the conditional unemployment volatility. section 3 shows the estimation results and discusses their implications.…”

Testing for Optimal Monetary Policy via Moment Inequalities

“…Our paper is also related to work by Ireland (1999), that tests and fails to reject the hypothesis that inflation and unemployment form a cointegrating relation, as implied by the Barro and Gordon model when the natural unemployment rate is non-stationary. Ruge-Murcia (2003) estimates a model that allows for asymmetric preferences, nesting the Barro and Gordon specification as a special case, and fails to reject the model of discretionary optimal monetary policy. Both these papers assume one equilibrium concept (discretion), and test whether some time series implications of discretionary policies, are rejected or not by the data.…”