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.

Managing Self-Organization of Expectations through Monetary Policy: a Macro Experiment / T. Assenza, P. Heemeijer, C. Hommes, D. Massaro. - In: JOURNAL OF MONETARY ECONOMICS. - ISSN 0304-3932. - 117(2021 Jan), pp. 170-186. [10.1016/j.jmoneco.2019.12.005]

Managing Self-Organization of Expectations through Monetary Policy: a Macro Experiment

D. Massaro
Ultimo
2021

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.
Laboratory experiments; Monetary policy; Expectations; Taylor principle;
Settore SECS-P/01 - Economia Politica
Article (author)
File in questo prodotto:
File Dimensione Formato  
ahhm_revision2.pdf

embargo fino al 01/01/2023

Tipologia: Post-print, accepted manuscript ecc. (versione accettata dall'editore)
Dimensione 3.01 MB
Formato Adobe PDF
3.01 MB Adobe PDF   Visualizza/Apri   Richiedi una copia
1-s2.0-S0304393219302181-main.pdf

accesso riservato

Tipologia: Publisher's version/PDF
Dimensione 1.39 MB
Formato Adobe PDF
1.39 MB Adobe PDF   Visualizza/Apri   Richiedi una copia
Pubblicazioni consigliate

Caricamento pubblicazioni consigliate

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: https://hdl.handle.net/2434/820832
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 15
  • ???jsp.display-item.citation.isi??? 18
social impact