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Persistence of Shocks in an Experimental Dynamic Stochastic General Equilibrium Economy

Experiments in Macroeconomics

ISBN: 978-1-78441-195-4, eISBN: 978-1-78441-194-7

ISSN: 0193-2306

Publication date: 12 November 2014

Abstract

We design experimental economies based on a New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model. We apply shocks to tastes, productivity, and interest rate policy, and measure the persistence of these shocks. We find that, in a setting where goods are perfect substitutes, there is little persistence of output shocks compared to treatments with monopolistic competition, which perform similarly irrespective of whether or not menu costs are present. Discretionary central banking is associated with greater persistence than automated instrumental rules.

Keywords

Acknowledgements

Acknowledgment

We would like to thank John Duffy, Shyam Sunder, Oleg Korenok, Steffan Ball, Ricardo Nunes, Michiel De Pooter, Wolfgang Luhan, and participants at the Federal Reserve Board, the University of Innsbruck, 1st and 2nd LeeX International Conference on Theoretical and Experimental Macroeconomics (Barcelona), the 2011 Computational Economics and Finance Conference (San Francisco), the 2011 Midwest Macro Meetings (Nashville), the 2011 SEA Meetings (Washington), the DSGE and Beyond Conference at the National Bank of Poland (Warsaw), the 2010 North American ESA Meetings (Tucson), the WISE International Workshop on Experimental Economics and Finance (Xiamen), the 5th Nordic Conference on Behavioral and Experimental Economics (Helsinki), and the 2010 International ESA Meetings (Copenhagen) for their comments. We are grateful to Blaž Žakelj for his help with programming. Damjan Pfajfar gratefully acknowledges funding from a Marie Curie project PIEF-GA-2009-254956 – EXPMAC.

Citation

Noussair, C.N., Pfajfar, D. and Zsiros, J. (2014), "Persistence of Shocks in an Experimental Dynamic Stochastic General Equilibrium Economy", Experiments in Macroeconomics (Research in Experimental Economics, Vol. 17), Emerald Group Publishing Limited, Bingley, pp. 71-108. https://doi.org/10.1108/S0193-230620140000017003

Publisher

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Emerald Group Publishing Limited

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