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http://hdl.handle.net/10419/55002
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| Title: | | On the role of heuristics: Experimental evidence on inflation dynamics  |
| Authors: | | Graf Lambsdorff, Johann Schubert, Manuel Giamattei, Marcus |
| Issue Date: | | 2011 |
| Series/Report no.: | | Passauer Diskussionspapiere: Volkswirtschaftliche Reihe V-63-11 |
| 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 |
| Appears in Collections: | | Passauer Diskussionspapiere, Volkswirtschaftliche Reihe, Universität Passau
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