Citation

Discussion Paper Details

Please find the details for DP4885 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Experimental Evidence on the Persistence of Output and Inflation

Author(s): Klaus Adam

Publication Date: January 2005

Keyword(s): experiments, output and inflation dynamics, rational expectations and restricted perceptions equilibrium

Programme Area(s): International Macroeconomics

Abstract: This paper presents experimental evidence from a monetary sticky price economy in which output and inflation depend on expected future inflation. With rational inflation expectations, the economy does not generate persistent deviations of output and inflation in response to a monetary shock. In the experimental sessions, however, output and inflation display considerable persistence and regular cyclical patterns. Such behaviour emerges because subjects? inflation expectations fail to be captured by rational expectations functions. Instead, a Restricted Perceptions Equilibrium (RPE), which assumes that agents use optimal but ?simple? forecast functions, describes subjects? inflation expectations surprisingly well and explains the observed behaviour of output and inflation.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4885

Bibliographic Reference

Adam, K. 2005. 'Experimental Evidence on the Persistence of Output and Inflation'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4885