02100cas a2200277 a 4500 AALejournalIMF017788 230101c9999 xx r poo 0 0eng d 5.00 USD 9781484309278 1018-5941 BD-DhAAL BD-DhAAL Debortoli, Davide. Designing a Simple Loss Function for Central Banks : Does a Dual Mandate Make Sense? / Davide Debortoli, Jinill Kim, Jesper Linde, Ricardo Nunes. Washington, D.C. : International Monetary Fund, 2017. 1 online resource (56 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Yes, it makes a lot of sense. This paper studies how to design simple loss functions for central banks, as parsimonious approximations to social welfare. We show, both analytically and quantitatively, that simple loss functions should feature a high weight on measures of economic activity, sometimes even larger than the weight on inflation. Two main factors drive our result. First, stabilizing economic activity also stabilizes other welfare relevant variables. Second, the estimated model features mitigated inflation distortions due to a low elasticity of substitution between monopolistic goods and a low interest rate sensitivity of demand. The result holds up in the presence of measurement errors, with large shocks that generate a trade-off between stabilizing inflation and resource utilization, and also when ensuring a low probability of hitting the zero lower bound on interest rates. Mode of access: Internet Kim, Jinill. Linde, Jesper. Nunes, Ricardo. IMF Working Papers; Working Paper ; No. 2017/164 Full text available on IMF http://elibrary.imf.org/view/journals/001/2017/164/001.2017.issue-164-en.xml IMF e-Library