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The distortionary effect of monetary policy : credit expansion vs. lump-sum transfers in the lab

Author

Listed:
  • Romain Baeriswyl

    () (Swiss National Bank, Boersenstrasse 15, 8022 Zurich, Switzerland)

  • Camille Cornand

    () (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon Saint-Etienne, Ecully, F-69130, France; Université Lyon 2, Lyon, F-69007, France)

Abstract

In an experimental monetary general equilibrium economy, we assess two processes of monetary injection : credit expansion vs. lump-sum monetary transfers. In theory, both processes are neutral and exert no real effect on allocation. In the experiment, however, credit expansion leads to substantial distortions of real allocation and relative prices, and exerts a redistributive effect across subjects. By contrast, an increase in money through lump-sum transfers does not distort real allocation.

Suggested Citation

  • Romain Baeriswyl & Camille Cornand, 2015. "The distortionary effect of monetary policy : credit expansion vs. lump-sum transfers in the lab," Working Papers 1516, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
  • Handle: RePEc:gat:wpaper:1516
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    References listed on IDEAS

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    1. Jack Ochs & John Duffy, 1999. "Emergence of Money as a Medium of Exchange: An Experimental Study," American Economic Review, American Economic Association, vol. 89(4), pages 847-877, September.
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    More about this item

    Keywords

    laboratory experiment; money neutrality; credit expansion; lump-sum monetary transfers;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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