A Dissertation on Experimental Macroeconomics

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Experimental Macroeconomics: Essays on Partial and General Equilibrium Dynamics in Laboratory Economies
This study explores how macroeconomic questions can be studied in laboratory
settings. A novel experimental methodology is proposed and implemented to study
how partial and general equilibrium economies respond to stochastic productivity
and monetary shocks under various conditions. Following the DSGE approach, subjects
interact over numerous periods to converge to a steady state, then are shocked
with temporary or permanent shocks. Their responses to the shocks are compared
with theoretical impulse responses. Findings indicate that subjects experience considerable
difficulty converging to the efficient competitive equilibrium in economies
where money is present. There is a high degree of heterogeneity in how individuals
react to monetary shocks and form expectations. Elicited expectations are highly
adaptive but are converging in the direction of rationality over extensive stationary
repetition. We fail to find evidence in both partial and general equilibrium settings
that subjects exhibit money illusion.

Luba Petersen
University of California Santa Cruz