Managing Self-organization of Expectations through Monetary Policy: a Macro Experiment

Assenza, Tiziana, Heemeijer, P., Hommes, C.H. and Massaro, D. (2018) Managing Self-organization of Expectations through Monetary Policy: a Macro Experiment. TSE Working Paper, n. 18-963, Toulouse

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Official URL: http://tse-fr.eu/pub/33074

Abstract

The New Keynesian theory of inflation determination is tested in this paper by means of laboratory experiments. We find that the Taylor principle is a necessary condition to ensure convergence to the inflation target, but it is not sufficient. Using a behavioral model of expectation formation, we show how heterogeneous expectations tend to self-organize on different forecasting strategies depending on monetary policy. Finally, we link the central bank ability to control inflation to the impact that monetary policy has on the type of feedback {positive or negative{ between expectations and realizations of aggregate variables and in turn on the composition of subjects with respect to the type of forecasting rules they use.

Item Type: Monograph (Working Paper)
Language: English
Date: November 2018
Place of Publication: Toulouse
Uncontrolled Keywords: Laboratory Experiments, Monetary Policy, Expectations, Taylor principle
JEL codes: C91 - Laboratory, Individual Behavior
C92 - Laboratory, Group Behavior
D84 - Expectations; Speculations
E52 - Monetary Policy (Targets, Instruments, and Effects)
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Toulouse Capitole University
Site: UT1
Date Deposited: 09 Nov 2018 12:46
Last Modified: 11 Jul 2019 14:52
OAI ID: oai:tse-fr.eu:33074
URI: http://publications.ut-capitole.fr/id/eprint/26410

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