Expectation Formation in a New Keynesian Economy: Evidence from a Laboratory Experiment
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This paper discusses an experimental study on the formation of expectation within a New Keynesian macroeconomic framework. The novelty of this paper (one of the earlier paper) is that each subject was asked to forecast both the inflation rate and output gap at the same time, which is an improvement over the existing literature. We find a lot of heterogeneity in expectation formation and also the model switching nature by the subjects.
KeywordsExperimental economics Inflation expectations Output gap expectation New Keynesian model Taylor rule
JEL ClassificationC91 C92 E37 E52
We would like to thank Ajitava Raychaudhuri and Ambar Nath Ghosh for the helpful suggestions. Financial support from the Social Science and Cultural Resources program, UPE II, Jadavpur University, made the study possible for which we are grateful.
Compliance with Ethical Standards
Conflict of Interest
The authors declare that they have no competing interests.
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