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

  • Jim Engle-Warnick

    (McGill University)

  • Nurlan Turdaliev

    (McGill University)

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://econwpa.repec.org/eps/mac/papers/0511/0511022.pdf
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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
Contact details of provider: Web page: http://econwpa.repec.org

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  18. Daniel Houser & Michael Keane & Kevin McCabe, 2004. "Behavior in a Dynamic Decision Problem: An Analysis of Experimental Evidence Using a Bayesian Type Classification Algorithm," Econometrica, Econometric Society, vol. 72(3), pages 781-822, 05.
  19. Taylor, John B., 1998. "The Robustness and Efficiency of Monetary Policy Rules as Guidelines for Interest Rate Setting by the European Central Bank," Seminar Papers 649, Stockholm University, Institute for International Economic Studies.
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