The alternative goals of the stabilization policy

This article presents the alternative goals of the central bank during the realization of the economic policy. The central bank can set the inflation or the economic cycle. Highly independent central banks (European Central Bank, Czech National Bank etc.) set the inflation, it means they minimise the inflation variability. Dependent central banks make us the Phillips curve and set the economic cycle. It means they minimise the output gap variability. If the central bank follows the inflation variability, the society must tolerate the output gap variability and on the contrary low output gap variability leads to high inflation variability. There is a negative relationship between the output gap variability and the inflation variability. The approach used in this article appears from the neoclassical model, it means from assumptions of the sticky price specifications and rational expectations.

Keywords: neoclassical approach, Phillips curve, New-Keynesian approach, rational expectations, optimization problem, loss function