Frictions in an Experimental Dynamic Stochastic General Equilibrium Economy

Charles N. Noussair, Damjan Pfajfar, Janos Zsiros

Research output: Contribution to journalArticlepeer-review

Abstract

We construct experimental economies, populated with human subjects, with different institutional features that have a structure and incentives similar to a dynamic stochastic general equilibrium model. An experimental economy with monopolistic competition and no menu costs generates empirical patterns that are closer to the U.S. economy than simulations or the other experimental environments. We observe greater welfare and output in a setting where goods are perfect substitutes compared to treatments with monopolistic competition. Discretionary human central bankers produce lower output and welfare compared to an automated instrumental rule. Menu costs reduce inflation volatility.

Original languageEnglish (US)
Pages (from-to)555-587
Number of pages33
JournalJournal of Money, Credit and Banking
Volume53
Issue number2-3
DOIs
StatePublished - Mar 1 2021

Keywords

  • DSGE economy
  • frictions
  • laboratory experiments
  • menu costs

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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