Objective
The objective of this proposal is to address three issues in the hart of the debate in modern macroeconomics, and in particular in monetary economics. All these issues will be analyzed with a new and innovative research methodology within this field: laboratory experiments. This field has a lot of potential to address some of questions regarding monetary policy design as we abstract from the influence of exogenous factors and thus it is quite straightforward to analyze properties of the standard macroeconomic model under different expectation formation processes. The first two issues are concerned with the design of monetary policy: first to establish the relationship between monetary policy and expectation formation mechanism and second to investigate what is the optimal level of transparency and central bank communication strategy to stabilize inflation and output. We search for the design of monetary policy that would perform best in a controlled environment when subject are asked to forecast inflation and output. In order that this can be achieved inflation expectations should be well anchored. It is expected that several designs proposed in the literature will not prevent the emergence of expectations driven cycles. A third issue that will be addressed in this proposal is to put the standard sticky-price New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model to the test in the laboratory. Using subjects’ inputs and decisions in a simplified fictitious economy with households, firms, and policy makers, we will derive the main macroeconomics aggregates and compare their evolution and their reactions to monetary policy changes with the theoretical predictions from the DSGE models and actual observed stylized facts. The final objective of this project is the dissemination of results and organization of an academic conference on the proposed topic.
Fields of science
Topic(s)
Call for proposal
FP7-PEOPLE-2009-IEF
See other projects for this call
Funding Scheme
MC-IEF - Intra-European Fellowships (IEF)Coordinator
5037 AB Tilburg
Netherlands