On Behavioral Macroeconomics, Globalization, and Economic Growth

Date: 2015-06-18
By: Rosas-Martinez, Victor H.
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:70751&r=net
We assess theoretically the effect of forming a free trade union on the total production of a nation, where such effects are caused by the absorption of technologies. A popular metaphor describes the people as crabs in a bucket because when one crab tries to scape, the others pull it down avoiding a possible way out for all of them. Given this knowledge, posteriorly and independently of the income inequality levels, we extend our analyses to consider the effect of envy in a macroeconomic level on the total production, and draw the implications which this phenomenon has on the formation of free trade unions. We make strategic policy recommendations to allow the achievement of a globalization that benefits each member nation, where we show that the great trade union might have to start with gradual and charitable subregional agreements.
Keywords: International Trade; Technological Absorption; Behavioral Macroeconomics; Economic Growth; Trade Policy
JEL: O11 O24

Natural Experiments in Macroeconomics

Date: 2015-05
By: Fuchs-Schündeln, Nicola
Hassan, Tarek
URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:10628&r=net
A growing literature relies on natural experiments to establish causal effects in macroeconomics. In diverse applications, natural experiments have been used to verify underlying assumptions of conventional models, quantify specific model parameters, and identify mechanisms that have major effects on macroeconomic quantities but are absent from conventional models. We discuss and compare the use of natural experiments across these different applications and summarize what they have taught us about such diverse subjects as the validity of the Permanent Income Hypothesis, the size of the fiscal multiplier, and about the effects of institutions, social structure, and culture on economic growth. We also outline challenges for future work in each of these fields, give guidance for identifying useful natural experiments, and discuss the strengths and weaknesses of the approach.
Keywords: Civic Capital; Fiscal Multiplier; Institutions; Multiple Equilibria; Networks; Permanent Income Hypothesis; Social Structure; Social Ties; Trust
JEL: C1 C9 E21 E62 H31 O11 O14 O43 O50

Course: Barcelona LeeX Experimental Economics Summer School in Macroeconomics

Barcelona LeeX Experimental Economics Summer School in Macroeconomics in Universitat Pompeu Fabra.
June 11-15, 2012:

Introduction    Program    Lecturers     Course Lectures    Accommodation    BCN Information    How to Subscribe

More Summer Schools    Contact

Charles Noussair | Shyam Sunder | John Duffy | Frank Heinemann | Rosemarie Nagel


Charles Noussair

  • Experimental Studies on Economic Growth and   DSGE models

Understanding the mechanisms behind economic growth is a fundamental task of macroeconomics. A class of models, called growth models, has been proposed to address this challenge. This lecture will describe how experimental methods have been used to evaluate the predictions of these models. Empirical evidence from field studies supports the view that institutions can influence the rate of economic growth. This lecture will cover how the role of institutions in economic growth can be studied using experimental methods. A particular type of model, the dynamic stochastic general equilibrium (DSGE) model, has become a standard tool of policy analysis. This lecture will describe how experiments with the same structure can be constructed and used to address policy questions.


  • Literature:

Vivian Lei and Charles Noussair “An Experimental Test of an Optimal Growth Model", American Economic Review, Vol. 92, no 3, June 2002, pages 549-570.

C. Monica Capra, Colin Camerer, Tomomi Tanaka, Lauren Feiler, Veronica Sovero, and Charles Noussair “The Impact of Simple Institutions in Experimental Economies with Poverty Traps", Economic Journal 119, 539, July 2009, pages 977 – 1009.

Charles Noussair, Damjan Pfajfar, and Janos Zsiros, “Frictions, Persistence, and Central Bank Policy in an Experimental Dynamic Stochastic General Equilibrium Economy", Tilburg University working paper, 2011.


Shyam Sunder


  • Complexity and Abstraction: Designing Macro Experiments

Relevant real world phenomena and relevant models of interest serve as two important benchmarks in designing laboratory experiments. With their fractal structure, phenomena in field are endlessly complex. Accordingly, realism (i.e., fidelity to the field environment) and theory (i.e., fidelity to the model) place important, often conflicting, demands on design of laboratory experiments.  Do the details matter? Which ones do? How do we find out? Why do the details that “do not matter" exist in the field? If they are just matters of refinement, which refinements are and are not to be ignored in laboratory? How generalizable are the laboratory findings? How does an experimenter find his way through this maze that connects limitless complexity of the field to simple tidy models of economics to gain a better understanding of economic phenomena? We shall explore the practical problems of identifying interesting questions, and developing experimental designs to address them using some examples, notes, and some macro experiments.

Sunder, Shyam. “Determinants of Economic Interaction: Behavior or Structure." Journal of Economic Interaction and Coordination 1,   no. 1 (May 2006): 21-32. Text (PDF).

Sunder, Shyam. “Real Phenomena, Theory and Design of Laboratory Experiments in Economics." Notes. Text (PDF).

Lim, Suk S., Edward C. Prescott and Shyam Sunder. “Stationary Solution to the Overlapping Generations Model of Fiat Money: Experimental Evidence." Empirical Economics 19, no. 2 (1994): 255-277. Text (PDF)

Marimon, Ramon and Shyam Sunder. “Indeterminacy of Equilibria in a Hyperinflationary World: Experimental Evidence." Econometrica 61, no. 5 (1993): 1073-1108. Text (PDF).

Marimon, Ramon and Shyam Sunder. “Expectations and Learning Under Alternative Monetary Regimes: An Experimental Approach." Economic Theory 4 (1994), 131-162. Text (PDF)

Huber, Juergen, Martin Shubik, and Shyam Sunder. “Financing of Public Goods through Taxation in a General Equilibrium Economy: Theory and Experimental Evidence," Cowles Foundation Discussion Paper 1830, October 23, 2011.

Huber, Juergen, Martin Shubik and Shyam Sunder. “Sufficiency of an Outside Bank and a Default Penalty to Support the Value of Fiat Money: Experimental Evidence." Cowles Foundation Discussion Paper No. 1675, Revised June 12, 2011.


  • Experiments with Minimally Intelligent Agents and Minimal Institutions

Laboratory exploration of properties of economic institutions and policies has traditionally been done using profit motivated human traders.  Outcomes of such experiments, when compared with outcomes of identical economies populated with minimally intelligent algorithmic agents yield valuable insights. We can isolate which of the properties of the economies of interest arise from their structure, and which ones are attributable to the behavior of agents. Starting with three micro applications, we shall study three macro applications of this human-algorithm hybrid approach to experimentation.

Gode, Dhananjay K. and Shyam Sunder. “Allocative Efficiency of Markets with Zero Intelligence Traders: Market as a Partial Substitute for Individual Rationality." The Journal of Political Economy 101, no. 1 (February 1993): 119-137.Text (PDF).

Gode, Dhananjay and Shyam Sunder. “What Makes Markets Allocationally Efficient?" Quarterly Journal of Economics 112, no. 2 (May 1997), 603-630. GSIA Reprint No. 1473.Abstract (PDF), Text (PDF).

Gode, Dhananjay K., and Shyam Sunder. “Double Auction Dynamics: Structural Effects of Non-Binding Price Controls."Journal of Economic Dynamics and Control 28, no. 9 (July 2004): 1707-1731. Abstract(PDF), Text (PDF).

Huber, Juergen, Martin Shubik and Shyam Sunder. “Three Minimal Market Institutions: Theory and Experimental Evidence." Games and Economic Behavior 70 (2010) 403-424.

Angerer, Martin, Juergen Huber, Martin Shubik and Shyam Sunder. “An Economy with Personal Currency: Theory and Experimental Evidence."Annals of Finance, Volume 6, Number 4, October 2010, pp.475-509.

Huber, Juergen, Martin Shubik and Shyam Sunder. “Default Penalty as a Selection Mechanism Among Multiple Equilibria."Cowles Foundation Discussion Paper 1730R, Revised February 6, 2011.


John Duffy

  • Overview of Macroeconomic Experiments

This lecture will expose participants to the breadth of macroeconomic topics and questions that have been explored using laboratory methods. The aim of this lecture will be to stimulate thinking about ideas for new projects that build on what has already been done. In addition, participants will be encouraged to extend laboratory methods to macroeconomic models or questions that have not been previously addressed. Methodological issues that are particularly relevant to macroeconomic experiments, e.g., implementation of discounting and infinite horizons, will also be addressed.

  • Readings:
Duffy, J. (fortcoming), “Macroeconomics: A Survey of Laboratory Research" to appear in Handbook of Experimental Economics, vol. 2, edited by John Kagel and Al Roth.

Ochs, J. (1995), “Coordination Problems," in J. Kagel and A.E. Roth, (Eds.), The Handbook of Experimental Economics, (Princeton: Princeton University Press).

Ricciuti, R. (2005), “Bringing Macroeconomics into the Lab," working paper, University of Siena.

Duffy, J. (1998), “Monetary Theory in the Laboratory," Federal Reserve Bank of St. Louis Review 80, 9-26.


  • Asset Pricing: Bubbles, Crashes and Expectations

Currently, economies around the world are experiencing an economic downturn brought about by the collapse of housing and equity prices and the deleveraging of the financial institutions that underwrote those assets.  In this lecture we examine laboratory studies addressing asset pricing and the phenomenon of asset price bubbles and crashes.  An understanding of the causes of asset price bubbles and cashes is of obvious importance to both policymakers and asset market participants. While there exists experimental designs that reliably yield asset price bubbles and crashes among inexperienced subjects, there remains much more work to be done on this topic, for instance, there is a need for an experimental design in which asset price bubbles and crashes are recurrent phenomena.

Smith, Vernon, Gerry L. Suchanek and Arlington W. Williams, 1988. “Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets," Econometrica, 56, 1119-1151.

 Lei, Vivian, Charles N. Noussair and Charles R. Plott 2001. “Nonspeculative Bubbles in Experimental Asset Markets: Lack of Common Knowledge of Rationality vs. Actual Irrationality," Econometrica, 69, 831-859.

Dufwenberg, Martin, Tobias Lindqvist and Evan Moore, 2005. “Bubbles and Experience: An Experiment," American Economic Review, 95, 1731-1737.

Hommes, Cars.H., Joep Sonnemans, Jan Tuinstra and Henk van de Velden, 2005. “Coordination of Expectations in Asset Pricing Experiments," Review of Financial Studies 18, 955-980.

Ernan Haruvy, Yaron Lahav and Charles N. Noussair, 2007. “Traders’ Expectations in Asset Markets: Experimental Evidence," American Economic Review 97, 1901-1920.

Crockett, Sean and John Duffy, 2009. “A General Equilibrium Approach to Asset Pricing Experiments." working paper.


  • Monetary Theory

Among the central questions in monetary theory are why intrinsically worthless fiat money serves as a store of value and why it is used as a medium of exchange when other assets dominate it in rate of return. Various theories have been developed to address these fundamental questions. For instance, overlapping generations models of money may explain why fiat money has value, and search-theoretic approaches can rationalize why money is used when dominated in rate of return by other competing assets. However, the frictions in these models -overlapping generations and search frictions- make them difficult to take to field data. On the other hand, a number of laboratory studies of such models have been conducted. These lectures will outline the main findings from those studies and point out promising new extensions.


  • Literature:


Duffy, J. (1998), “Monetary Theory in the Laboratory," Federal Reserve Bank of St. Louis Review 80 (September/October), 9-26.


Lucas, R.E. (1986), “Adaptive Behavior and Economic Theory," Journal of Business 59,

Wallace, N. (1980), “The Overlapping Generations Model of Fiat Money," in J.H. Kareken and N. Wallace, Eds., Models of Monetary Economies, Federal Reserve Bank of Minneapolis

Kiyotaki, N. and R. Wright (1989), “On Money as a Medium of Exchange," Journal of Political Economy 97, 927-54



Bernasconi, M. and Kirchkamp, O. (2000), “Why Do Monetary Policies Matter? An Experimental Study of Saving and Inflation in an Overlapping Generations Model," Journal of Monetary Economics 46, 315-43.

Brown, P. (1996), “Experimental Evidence on Money as a Medium of Exchange," Journal of Economic Dynamics and Control 20, 583-600.

Camera, G., Noussair, C., and Tucker, S. (2003), “Rate-of-Return Dominance and Efficiency in an Experimental Economy," Economic Theory 22, 629-60.

Duffy, J. and J. Ochs (2002), “Intrinsically Worthless Objects as Media of Exchange: Experimental Evidence," International Economic Review 43, 637-73.

Duffy, J. and J. Ochs (1999), “Emergence of Money as a Medium of Exchange: An Experimental Study," American Economic Review 89, 847-77.

Lim, S. Prescott, E.C. and Sunder, S. (1994), “Stationary Solution to the Overlapping Generations Model of Fiat Money: Experimental Evidence," Empirical Economics 19, 255-77.

Marimon, R. and Sunder, S. (1994), “Expectations and Learning under Alternative Monetary Regimes: An Experimental Approach," Economic Theory 4, 131-62.

Marimon, R. and Sunder, S. (1993) “Indeterminacy of Equilibria in a Hyperinflationary World: Experimental Evidence," Econometrica 61, 1073-107.

Frank Heinemann

  • Understanding Financial Crises: The Contribution of Experimental Economics

The patterns of financial crises are remarkably predictable. Minsky (1972) has described these patterns by phases, some of which contain behavioural hypotheses that can be tested by laboratory experiments. Under which conditions can bubbles arise? When do they burst? Why do people herd and does herding destabilize financial markets? What triggers a bank run and how do people coordinate in an environment with multiple equilibria? This lecture will lay out experimental evidence containing some answers to these questions. In particular, we will look at experiments on games with strategic complementarities. How predictable are choices if the game has multiple equilibria and which theory is well-suited to give advice for individual behavior? Managing information flow is one of the major challenges for central banks and bank supervisors. The lecture explains what we can learn from experiments for managing information flow in the presence of strategic complementarities.


  • Literature:

Minsky, H.P. (1972), Financial Instability Revisited: the Economics of Disaster,          http://fraser.stlouisfed.org/historicaldocs/dismech/download/59037/fininst_minsky.pdf

Brunnermeier, Markus, and John Morgan (2008), Clock Games: Theory and Experiments, Games and Economic Behavior, forthcoming, http://www.princeton.edu/~markus/research/papers/clock_games.pdf

Kübler, Dorothea, and Georg von Weizsäcker (2004), Limited Depth of Reasoning and Failure of Cascade Formation in the Laboratory, Review of Economic Studies 71, 425-442.

Schotter, Andrew, and Tanju Yorulmazer (2009), On the Severity of Bank Runs,  Journal of Financial Intermediation 18, 217-241.

Heinemann, Frank, Rosemarie Nagel, and Peter Ockenfels (2009), Measuring Strategic Uncertainty in Coordination Games, Review of Economic Studies 76, 181-221.

Cornand, C., and F. Heinemann (2010), Measuring Agents’ Reaction to Private and Public Information in Games with Strategic Complementarities, CESifo Working Paper 2947, http://anna.ww.tu-berlin.de/~makro/Heinemann/download/ch_3.pdf


  • Speculative Attacks and the Theory of Global Games – Experimental Tests of Global Game Predictions

Speculative attacks can be viewed upon as coordination games: if a sufficient number of traders (and a sufficient amount of capital) is involved in an attack, the pressure on foreign exchange markets forces the central bank to devaluate its currency. Then, all attacking traders gain from the devaluation. But, if the number of attackers is too small, the central bank can defend the peg, and attacking traders lose on transaction costs. Speculative-attack games have multiple equilibria if payoff functions are common knowledge. The theory of global embeds a coordination game in an environment with private information about parameters of the payoff function. If private information is sufficiently precise, the global game has a unique equilibrium. Hence, the theory of global games can be used for a unique prediction of the outcome of a speculative-attack game. This theory provides a number of hypotheses that can be tested in laboratory experiments. This lecture first presents some of the theoretical background and derives testable hypotheses. Then, it explains experiments that have been used for these tests and shows how they have been analyzed.


  • Literature:


Heinemann, Frank (2002), “Exchange-Rate Attack as a Coordination Game: Theory and Experimental Evidence," Oxford Review of Economic Policy 18, 462-478.



Obstfeld, Maurice (1997), “Destabilizing Effects of Exchange-Rate Escape Clauses," Journal of International Economics, 61-77.

Carlsson, Hans and Eric van Damme (1993), “Global Games and Equilibrium Selection," Econometrica 61, 989-1018.

Morris, S., and H.S. Shin (1998), “Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," American Economic Review, 88, 587-597.

Heinemann, Frank (2000), “Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks: Comment," American Economic Review 90, 316-318.

Hellwig, Christian (2002), “Public Information, Private Information, and the Multiplicity of Equilibria in Coordination Games," Journal of Economic Theory 107, pp. 191-222.



Heinemann, F., R. Nagel, and P. Ockenfels (2004), “The Theory of Global Games on Test: Experimental Analysis of Coordination Games with Public and Private Information," Econometrica 72 (5), 2004, pp. 1583-1599.

Cornand C. (2006), “Speculative Attacks and Informational Structure: An Experimental Study," Review of International Economics 14, 797-817.


Rosemarie Nagel

  • Methodology

This lecture introduces the methods of experimental economics. We will discuss what is an economic experiment (field vs lab experiment), the different areas in experimental economics and behavioral economics, the link between experimental economics, theory and empirical work and important design issues. This introduction is meant to give a quick introduction to those who have never followed an experimental economic course. Prior to the course we will send the partipants of the summer school some classical experiments which they can do online.


  • Literature:
Akerlof, G.A. (2002), “Behavioral Macroeconomics and Macroeconomic Behavior, “American Economic Review," 92. 411-433.

Camerer, C. (2003), “Behavioral Game Theory," Princeton University Press

Friedman, D. and Sunder, S. (1994), Experimental Methods. Cambridge Univ. Press: Chapters 1-2: 1-20.

Roth, A.E. (1995), Introduction to Experimental Economics. In: Kagel, J.H. and Roth, A.E. (eds.): Handbook of Experimental Economics. Princeton Univ. Press: Princeton, N.J., Chapter 1: 3-109.

Plott, C. and Smith, V. (2003), Handbook of Experimental Economics Results, North-Holland, Amsterdam.

Porter, D. and Smith, V. L.Samuelson, L. (2005), “Economic Theory and Experimental Economics," Journal of Economic Literature 43(1): 65-107.

Smith, V.L. (2002), “Method in Experiment: Rhetoric and Reality." Experimental Economics 5(2): 91-110.

Special issue (2005), Experiment, Theory, World: A Symposium on the Role of Experiments in Economics. Journal of Economic Methodology 12(2)


  • Literature:
Williams, A.W. (1987), “The Formation of Price Forecasts in Experimental Markets," Journal of Money, Credit and Banking 19, 1-18.

Dwyer, Jr., G.P., A.W. Williams, R.C. Battalio and T.I. Mason (1993), “Tests of Rational Expectations in a Stark Setting," Economic Journal 103, 586-601.

Marimon, R. and S. Sunder (1993) “Indeterminacy of Equilibria in a Hyperinflationary World: Experimental Evidence," Econometrica 61, 1073-1107.

Hommes, C.H., J. Sonnemans, J. Tuinstra and H. van de Velden (2007), “Learning in Cobweb Experiments," Macroeconomic Dynamics 11 (Supplement 1), 8-33.

Camerer, C. F. (2003). Chapter 5, Dominance Solvable Games. Behavioral game theory: Experiments on strategic interaction. Princeton, Princeton University Press.

Nagel Rosemarie (1995), “Unraveling in Guessing Games: An Experimental Study." American Economic Review 85,5, 1313-1326.

An Experiment on the Causes of Bank Run Contagions

Date: 2012
By: Surajeet Chakravarty (Department of Economics, University of Exeter)
Miguel A. Fonseca (Department of Economics, University of Exeter)
Todd Kaplan (Department of Economics, University of Exeter)
URL: http://d.repec.org/n?u=RePEc:exe:wpaper:1206&r=net
To understand the mechanisms behind bank run contagions, we conduct bank run experiments in a modified Diamond-Dybvig setup with two banks (Left and Right). The banks’ liquidity levels are either linked or independent. Left Bank depositors see their bank’s liquidity level before deciding. Right Bank depositors only see Left Bank withdrawals before deciding. We find that Left Bank depositors’ actions signicantly affect Right Bank depositors’ behavior, even when liquidities are independent. Furthermore, a panic may be a one-way street: an increase in Left Bank withdrawals can cause a panic run on the Right Bank, but a decrease cannot calm markets.
Keywords: bank runs, contagion, experiment, multiple equilibria.
JEL: C72

總體經濟學實驗文獻回顧 by Duffy

John Duffy (forthcoming) “Macroeconomics: A Survey of Laboratory Research." Handbook of Experimental Economics, Volume 2, Princeton University Press. link to PDF. (本站複本)

Notes by yinung

終於找到文獻回顧了! (哈, 其實以前已經找過了,… 人的記憶力真的很脆弱…)


1) 總體經濟之個體基礎評估
an assessment of the micro-assumptions underlying macroeconomic models,

2) 總體模型中預期形成之理解
a better understanding of the dynamics of expectations which play a critical role in macroeconomic models,

a means of resolving equilibrium selection (coordination) problems in environments with multiple equilibria,

4) 驗證沒有現地之料之總體模型預測結果
validation of macroeconomic model predictions for which field data are not available and

5) 各種總體政策干預對個人形為之影響
the impact of various macroeconomic policy interventions on individual behavior.

1) 總體經濟之個體基礎評估 (to be done)

主題例如: intertemporal consumption and savings decisions, inflation and unemployment, economic growth, bank runs, monetary exchange, monetary or fiscal policy

本文主要內容 (to be done)

2. Dynamic, Intertemporal Optimization

Optimal Consumption/Savings Decisions, Exponential discounting and infinite horizons

3. Coordination Problems

Poverty Traps, Bank Runs, Resolving Coordination Problems: Sunspots, Resolving Coordination Problems: The Global Game Approach

4. Sectoral Macroeconomics

5. Macroeconomic Policies

Ricardian equivalence, Commitment versus discretion, Monetary policy decision-making, Fiscal and tax policies, Exponential or Hyperbolic Discounting, Expectation Formation,

Economic Classroom Experiments: The Handbook for Economics Lecturers

source: The Handbook for Economics Lecturers  from Economics Network

這是一個對經濟學「教學」和「學習」都很棒的網站: 目錄如下, 也有 PDF 版

裡面詳述實驗經濟的教學討論, 找時間要將它整理成中文…

By Dieter Balkenborg  and Todd Kaplan, University of Exeter (UK).

macroeconomic experiment – Google 學術搜尋

總體經濟實驗:google 蒐尋結果

檔案類型: PDF/Adobe Acrobat – 快速檢視

This work is a continuation of a macroeconomic classroom experiment Although the number of macroeconomic experiments has increased over the past five

[PDF] Experimental Macroeconomics


檔案類型: PDF/Adobe Acrobat – 快速檢視
由 J Duffy 著作被引用 15 次相關文章
sociology. 2 Insights from Macroeconomic Experiments. To date, experimental macroeconomics research has yielded some important insights, including

這一篇是簡要的文獻回顧; 其中有提到其它的文獻回顧:

Surveys of experimental macroeconomics are found in Ochs (1995), Duffy (1998) and Ricciuti (2004).

  • Ochs, J. (1995), “Coordination Problems,” in J.H. Kagel and A.E. Roth, eds., The Handbook of Experimental Economics Princeton: Princeton University Press, 195—251.
  • Duffy, J. (1998), “Monetary Theory in the Laboratory,” Federal Reserve Bank of St. Louis Economic Review, 80 (September/October), 9-26.
  • Ricciuti, R. (2004) “Bringing Macroeconomics into the Lab” International Center for Economic Research, working paper no. 26.

[PDF] Macroeconomics: A Survey of Laboratory Research∗


檔案類型: PDF/Adobe Acrobat – 快速檢視
由 J Duffy 著作2008被引用 6 次相關文章
This chapter surveys laboratory experiments addressing macroeconomic phenomena. The …. competitive equilibrium as the first macro-economic experiment.

這一篇是較完整的文獻回顧 (應該是準備要出書的)


Denise Hazlett’s Classroom Experiments in Macroeconomics

Money Supply Game  in Economics Network Economics Network of the Higher Education Academy


Course: Barcelona LeeX Experimental Economics Summer School in Macroeconomics

Individual Expectations and Aggregate Macro Behavior


Individual Expectations and Aggregate Macro Behavior

Date: 2011-05
By: Tiziana Assenza
Peter Heemeijer
Cars Hommes
Domenica Massaro
URL: http://d.repec.org/n?u=RePEc:dnb:dnbwpp:298&r=net
The way in which individual expectations shape aggregate macroeconomic variables is crucial for the transmission and effectiveness of monetary policy. We study the individual expectations formation process and the interaction with monetary policy, within a standard New Keynesian model, by means of laboratory experiments with human subjects. We find that a more aggressive monetary policy that sets the interest rate more than point for point in response to inflation stabilizes inflation in our experimental economies. We use a simple model of individual learning, with a performance-based evolutionary selection among heterogeneous forecasting heuristics, to explain coordination of individual expectations and aggregate macro behavior observed in the laboratory experiments. Three aggregate outcomes are observed: convergence to some equilibrium level, persistent oscillatory behaviour and oscillatory convergence. A simple heterogeneous expectations switching model fits individual learning as well as aggregate outcomes and outperforms homogeneous expectations benchmarks.
Keywords: Experiments; Monetary Policy; Expectations; Heterogeneity
JEL: C91