The New Keynesian theory of inflation determination is tested in this paper by means of laboratory experiments. We find that the Taylor principle is a necessary condition to ensure convergence to the inflation target, but it is not sufficient. Using a behavioral model of expectation formation, we show how heterogeneous expectations tend to self-organize on different forecasting strategies depending on monetary policy. Finally, we link the central bank’s ability to control inflation to the impact that monetary policy has on the type of feedback –positive or negative– between expectations and realizations of aggregate variables and in turn on the composition of subjects with respect to the type of forecasting rules they use.

Assenza, T., Heemeijer, P., Hommes, C. H., Massaro, D., Managing self-organization of expectations through monetary policy: A macro experiment, <<JOURNAL OF MONETARY ECONOMICS>>, 2019; (N/A): N/A-N/A. [doi:10.1016/j.jmoneco.2019.12.005] [http://hdl.handle.net/10807/152989]

Managing self-organization of expectations through monetary policy: A macro experiment

Assenza, T.
Primo
Writing – Original Draft Preparation
;
Massaro, D.
Ultimo
Writing – Original Draft Preparation
2019

Abstract

The New Keynesian theory of inflation determination is tested in this paper by means of laboratory experiments. We find that the Taylor principle is a necessary condition to ensure convergence to the inflation target, but it is not sufficient. Using a behavioral model of expectation formation, we show how heterogeneous expectations tend to self-organize on different forecasting strategies depending on monetary policy. Finally, we link the central bank’s ability to control inflation to the impact that monetary policy has on the type of feedback –positive or negative– between expectations and realizations of aggregate variables and in turn on the composition of subjects with respect to the type of forecasting rules they use.
Inglese
Assenza, T., Heemeijer, P., Hommes, C. H., Massaro, D., Managing self-organization of expectations through monetary policy: A macro experiment, <<JOURNAL OF MONETARY ECONOMICS>>, 2019; (N/A): N/A-N/A. [doi:10.1016/j.jmoneco.2019.12.005] [http://hdl.handle.net/10807/152989]
File in questo prodotto:
File Dimensione Formato  
1-s2.0-S0304393219302181-main-2.pdf

non disponibili

Tipologia file ?: Versione Editoriale (PDF)
Licenza: Non specificato
Dimensione 1.39 MB
Formato Unknown
1.39 MB Unknown   Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10807/152989
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 13
  • ???jsp.display-item.citation.isi??? 16
social impact