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MONETARY POLICY AND LEXICOGRAPHIC PREFERENCE ORDERING
Category: Economic Theory
Monetary Policy III Monday 26th August 2002, 09:30 - 11:00, Room: 1.11
Session Chair(s):
Zeno Rotondi, University of Rome "La Sapienza" and Bank of Rome, ITALY
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Abstract:
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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 a number of models that do this, and comment on their implications.
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Find this file in the \Papers\161\ folder of this CD-ROM.
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