Endogenous objectives and the evaluation of targeting rules for monetary policy$

Recent research in monetary economics has followed the advice of McCallum [1988. Robustness properties of a rule for monetary policy. Carnegie-Rochester Conference Series on Public Policy 29, 173–203] and investigated the robustness properties of monetary policy rules by evaluating them in a variety of models. Evaluation across models is typically based on an exogenously specified loss function. However, the theory on which many recent monetary policy models are based implies that changes in the structure of the model also have consequences for the policy objectives the central bank should pursue. Objectives are endogenous, not exogenous to the model. In this paper, I investigate the impact of endogenous objectives on the evaluation of targeting rules for monetary policy. r 2005 Elsevier B.V. All rights reserved