Monetary Policy and Lexicographic Preference Ordering

22 Pages Posted: 5 Mar 2004

See all articles by John Driffill

John Driffill

University of London - Birkbeck College; Centre for Economic Policy Research (CEPR)

Zeno Rotondi

UNICREDIT; LUISS Guido Carli University

Date Written: February 2004

Abstract

In this Paper, we argue that the objectives given to the European Central Bank in the Maastricht Treaty are not well represented by the widely used weighted sum of squared deviations of inflation and output from target (plus possibly terms in squared changes in interest rates to pick up interest rate smoothing). Instead, the stated lexicographic ordering should be taken at face value and its implications explored fully. We set out a number of models that do this, and comment on their implications.

Keywords: Monetary policy, time inconsistency, lexicographic preferences, European central bank

JEL Classification: E52, E58

Suggested Citation

Driffill, John and Rotondi, Zeno, Monetary Policy and Lexicographic Preference Ordering (February 2004). Available at SSRN: https://ssrn.com/abstract=511322

John Driffill (Contact Author)

University of London - Birkbeck College ( email )

London, WC1E 7HX
United Kingdom
+44 20 7631 6417 (Phone)
+44 20 7631 6416 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Zeno Rotondi

UNICREDIT ( email )

VIA SPECCHI 16
ROME, 00186
Italy

HOME PAGE: http://docenti.luiss.it/rotondi

LUISS Guido Carli University ( email )

Via O. Tommasini 1
Rome, Roma 00100
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
15
Abstract Views
1,145
PlumX Metrics