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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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  3. John B. Taylor, 1999. "A Historical Analysis of Monetary Policy Rules," NBER Chapters, in: Monetary Policy Rules, pages 319-348 National Bureau of Economic Research, Inc.
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  8. Taylor, John B., 1999. "The robustness and efficiency of monetary policy rules as guidelines for interest rate setting by the European central bank," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 655-679, June.
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  18. Jeff Fuhrer & George Moore, 1995. "Inflation Persistence," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 127-159.
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  23. Diana N. Weymark, 2003. "Economic Structure, Policy Objectives, and Optimal Interest Rate Policy at Low Inflation Rates," Vanderbilt University Department of Economics Working Papers 0310, Vanderbilt University Department of Economics.
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