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

  • Jim Engle-Warnick

    ()

  • Nurlan Turdaliev

    ()

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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Paper provided by McGill University, Department of Economics in its series Departmental Working Papers with number 2005-02.

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Length: 37 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:mcl:mclwop:2005-02
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