This paper proposes a novel explanation of the vast empirical evidence showing that output and prices react asymmetrically to monetary policy innovations over contractions and expansions in the business cycle. We use VAR techniques to show that monetary policy exerts stronger e¤ects on the U.S....

We establish several stylized facts about the behavior of individual uncertainty and disagreement between individuals when forecasting inflation in the laboratory. Subjects correctly perceive the underlying inflation uncertainty in only 60% of cases, which can be interpreted as the...

Using laboratory experiments within a New Keynesian macro framework, we explore the formation of inflation expectations and its interaction with monetary policy design. The central question in this paper is how to design monetary policy in the environment characterized by heterogeneous...

Abstract: This paper compares the behavior of subjects' uncertainty in different monetary policy environments when forecasting inflation in the laboratory. We find that inflation targeting produces lower uncertainty and higher accuracy of interval forecasts than inflation forecast targeting. We...

New Keynesian dynamic stochastic general equilibrium models are the principal paradigm currently employed for central bank policymaking. In this paper, we construct experimental economies, populated with human subjects, with the structure of a New Keynesian DSGE model. We give individuals...