Why do monetary policies matter? An experimental study of saving and inflation in an overlapping generations model
We study experiments of an overlapping generations model where inflation is determined by the monetary policy and by the amount of average saving within each period. We use a new experimental setup that allows us to observe more details of the process of expectation forming and separate this process from the actual saving process. In contrast to experimental findings by Lim, Prescott, Sunder; Marimon, Spear, Sunder; and Marimon, Sunder we find that (1) agents do not form first-order adaptive expectations; (2) subjects ‘over-save’ for precautionary reasons; as a result (3) the so-called Friedman conjecture holds, i.e. monetary policies which are equivalent in static equilibrium exhibit different levels and different volatility of inflation in the experiment. This may generate important policy trade-offs between monetary regimes. We discuss our findings and relate them to current research on adaptive learning and the role it may have in ranking alternative monetary policies.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Honkapohja, Seppo, 1995. "Bounded rationality in macroeconomics A review essay," Journal of Monetary Economics, Elsevier, vol. 35(3), pages 509-518, June.
- Marcet, Albert & Sargent, Thomas J., 1989. "Convergence of least squares learning mechanisms in self-referential linear stochastic models," Journal of Economic Theory, Elsevier, vol. 48(2), pages 337-368, August.
- Marimon, R. & Sunder, S., 1993.
"Expectations and Learning under Alternative Monetary Regimes: An Experimental Approach,"
189, Cambridge - Risk, Information & Quantity Signals.
- Marimon, Ramon & Sunder, Shyam, 1994. "Expectations and Learning under Alternative Monetary Regimes: An Experimental Approach," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(1), pages 131-162, January.
- Ramon Marimon & Shyam Sunder, 1993. "Expectations and learning under alternative monetary regimes: An experimental approach," Economics Working Papers 37, Department of Economics and Business, Universitat Pompeu Fabra.
- Marimon, Ramon & Sunder, Shyam, 1995.
"Does a constant money growth rule help stabilize inflation?: experimental evidence,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 43(1), pages 111-156, December.
- Marimon, R. & Sunder, S., 1995. "Does a Constant Money Growth Rule Help Stabilize Inflation?: Experimental Evidence," GSIA Working Papers 1995-04, Carnegie Mellon University, Tepper School of Business.
- Sugden, Robert, 1995. "A Theory of Focal Points," Economic Journal, Royal Economic Society, vol. 105(430), pages 533-550, May.
- Evans, Martin, 1991. "Discovering the Link between Inflation Rates and Inflation Uncertainty," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 169-184, May.
- Marimon, R. & Spear, S. & Sunder, S., 1991.
"Expectationally-Driven Market Volatility: An Experimental Study,"
GSIA Working Papers
1991-3, Carnegie Mellon University, Tepper School of Business.
- Marimon Ramon & Spear Stephen E. & Sunder Shyam, 1993. "Expectationally Driven Market Volatility: An Experimental Study," Journal of Economic Theory, Elsevier, vol. 61(1), pages 74-103, October.
- Ramon Marimon & Stephen E. Spear & Shyam Sunder, 1993. "Expectationally-driven market volatility: An experimental study," Economics Working Papers 21, Department of Economics and Business, Universitat Pompeu Fabra.
- Ramon Marimon & Stephen E. Spear & Shyam Sunder, 1992. "Expectationally-driven market volatility: an experimental study," Discussion Paper / Institute for Empirical Macroeconomics 73, Federal Reserve Bank of Minneapolis.
- Lim, Suk S & Prescott, Edward C & Sunder, Shyam, 1994. "Stationary Solution to the Overlapping Generations Model of Fiat Money: Experimental Evidence," Empirical Economics, Springer, vol. 19(2), pages 255-277.
- Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-472, June.
- Evans, George W. & Honkapohja, Seppo & Marimon, Ramon, 2001.
"Convergence In Monetary Inflation Models With Heterogeneous Learning Rules,"
Cambridge University Press, vol. 5(01), pages 1-31, February.
- Evans, George W. & Honkapohja, Seppo & Marimon, Ramon, 1996. "Convergence in Monetary Inflation Models with Heterogeneous Learning Rules," CEPR Discussion Papers 1310, C.E.P.R. Discussion Papers.
- Marimon, Ramon & Sunder, Shyam, 1993.
"Indeterminacy of Equilibria in a Hyperinflationary World: Experimental Evidence,"
Econometric Society, vol. 61(5), pages 1073-1107, September.
- Ramon Marimon & Shyam Sunder, 1993. "Indeterminacy of equilibria in a hyperinflationary world: Experimental evidence," Economics Working Papers 25, Department of Economics and Business, Universitat Pompeu Fabra.
- Evans, George W. & Honkapohja, Seppo, 1999. "Learning dynamics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 7, pages 449-542 Elsevier.
- Michael Bruno & Stanley Fischer, 1990. "Seigniorage, Operating Rules, and the High Inflation Trap," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 353-374.
When requesting a correction, please mention this item's handle: RePEc:eee:moneco:v:46:y:2000:i:2:p:315-343. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.