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An Experimental Test Of Taylor-Type Rules With Inexperienced Central Bankers

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Author Info

  • Jim Engle-Warnick

    (McGill University)

  • Nurlan Turdaliev

    (McGill University)

Abstract

We experimentally test whether a class of monetary policy decision rules describes decision making in a population of inexperienced central bankers. In our experiments, subjects repeatedly set the short-term interest rate for a computer economy with inflation as their target. A large majority of subjects learn to successfully control inflation. We find that Taylor-type rules fit the choice data well, and are instrumental in characterizing heterogeneity in decision making. Our experiment is the first to begin to organize data experimentally with an eye on monetary policy rules for this, one of the most widely watched and analyzed decisions in economics.

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File URL: http://128.118.178.162/eps/mac/papers/0511/0511022.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0511022.

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Length: 37 pages
Date of creation: 19 Nov 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0511022

Note: Type of Document - pdf; pages: 37
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Web page: http://128.118.178.162

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Keywords: monetary policy; Taylor rule; experimental economics; repeated games;

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References

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Blog mentions

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  1. What can Governors do?
    by chris dillow in Stumbling and Mumbling on 2012-11-27 14:22:21
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Cited by:
  1. Wolfgang Luhan & Johann Scharler, 2013. "Monetary Policy, Inflation Illusion and the Taylor Principle: An Experimental Study," Working Papers 2013-03, Faculty of Economics and Statistics, University of Innsbruck.
  2. Jim Engle-Warnick & Sonia Laszlo, 2006. "Learning-by-Doing in an Ambiguous Environment," CIRANO Working Papers 2006s-29, CIRANO.
  3. Robert Amano & Jim Engle-Warnick & Malik Shukayev, 2011. "Price-Level Targeting and Inflation Expectations: Experimental Evidence," Working Papers 11-18, Bank of Canada.
  4. Pfajfar, D. & Zakelj, B., 2011. "Inflation Expectations and Monetary Policy Design: Evidence from the Laboratory (Replaces CentER DP 2009-007)," Discussion Paper 2011-091, Tilburg University, Center for Economic Research.
  5. Roberto Ricciuti, 2003. "Bringing Macroeconomics into the Lab," Royal Holloway, University of London: Discussion Papers in Economics 03/9, Department of Economics, Royal Holloway University of London, revised Dec 2003.
  6. Noussair, C.N. & Pfajfar, D. & Zsiros, J., 2011. "Frictions, Persistence, and Central Bank Policy in an Experimental Dynamic Stochastic General Equilibrium Economy," Discussion Paper 2011-030, Tilburg University, Center for Economic Research.

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