Optimal money supply rules under asymmetric objective criteria

Abstract

This paper examines the derivation and properties of optimal money supply rules when such rules are chosen to minimize a loss function with asymmetric properties. Optimal money supply rules derived under symmetric and asymmetric objective criteria are compared under alternative expectations scenarios. When shocks have no impact on variables in the loss function, the optimal rule under a symmetric objective criterion is then also optimal under an asymmetric objective criterion. When shocks have some impact on variables in the loss function, the optimal policy rule will be different under the alternative criteria.