The empirical estimation of Central Bank policy preference variables with time-variable loss functions

ÖZBEK L., HACIOĞLU V.

COMMUNICATIONS IN STATISTICS-SIMULATION AND COMPUTATION, 2025 (SCI-Expanded) identifier

  • Yayın Türü: Makale / Tam Makale
  • Basım Tarihi: 2025
  • Doi Numarası: 10.1080/03610918.2025.2527897
  • Dergi Adı: COMMUNICATIONS IN STATISTICS-SIMULATION AND COMPUTATION
  • Derginin Tarandığı İndeksler: Science Citation Index Expanded (SCI-EXPANDED), Scopus, Academic Search Premier, Applied Science & Technology Source, Business Source Elite, Business Source Premier, CAB Abstracts, Compendex, Computer & Applied Sciences, Veterinary Science Database, zbMATH, Civil Engineering Abstracts
  • İstanbul Üniversitesi Adresli: Evet

Özet

In this study, we simultaneously estimate the time-varying parameters of a hypothetical loss function for the central bank and the system parameters of the economy. While the time-varying loss function parameters characterize the changing policy preferences of the central bank with respect to inflation and the output gap, the system parameters give an idea about the evolution of the inflation and the output gap in the economy which are taken as the constraints in the optimization problem of the central bank. As a result, simulation experiments show that the method proposed to estimate the loss function parameters and the system parameters provide robust results. Such a finding indicates that the framework and the methodology that are introduced in this paper can also be used in future studies which employ the real-world data. In addition, an empirical study was conducted using real data from the US economy between 1960 and 2020. In this empirical study, the US Federal Reserve's overnight interest rate and output gap data were used. The results showed that optimal control and real values are compatible with each other.