Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/55002 
Year of Publication: 
2011
Series/Report no.: 
Passauer Diskussionspapiere - Volkswirtschaftliche Reihe No. V-63-11
Publisher: 
Universität Passau, Wirtschaftswissenschaftliche Fakultät, Passau
Abstract: 
We carry out an experiment on a macroeconomic price setting game where prices are complements. Despite relevant information being common knowledge and price flexibility we observe significant deviation from equilibrium prices and history dependence. In a first treatment we observe that equilibrium values were obtained in the long run but at the cost of a very slow adjustment and thus history dependence. By reporting a business indicator in a simpler form, subjects were given the chance to coordinate their prices by help of a heuristic in a second treatment. This option was widely taken, bringing about excess volatility and a deviation from equilibrium even in the long run. In a third treatment with staggered pricing we observe, contrary to theoretical predictions, the one-round ahead (publicly known) shock is significant, but future inflation is not. Our findings cast light on price dynamics when subjects have limited computational capacities.
Subjects: 
Inflation Persistence
Staggered Prices
Sticky Reasoning
New Keynesian Phillips Curve
JEL: 
E31
C92
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.