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

Tiziana Assenza, P. Heemeijer, Cars Hommes and Domenico Massaro

Journal of Monetary Economics, 2021, vol. 117, issue C, 170-186

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.

Keywords: Laboratory experiments; Monetary policy; Expectations; Taylor principle (search for similar items in EconPapers)
JEL-codes: C91 C92 D84 E52 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304393219302181
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Managing Self-organization of Expectations through Monetary Policy: a Macro Experiment (2021)
Working Paper: Managing Self-organization of Expectations through Monetary Policy: a Macro Experiment (2018)
Working Paper: Managing Self-organization of Expectations through Monetary Policy: a Macro Experiment (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:117:y:2021:i:c:p:170-186

DOI: 10.1016/j.jmoneco.2019.12.005

Access Statistics for this article

Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser

More articles in Journal of Monetary Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().