Economics Seminar (2020-08)

Topic: Inflation and Welfare in the Laboratory

Speaker: Janet Hua Jiang, Bank of Canada

Time: June 5, Friday. 8:00a.m. - 9:30a.m.

Location: Microsoft Teams Online Conference Room

Abstract:

We develop an experimental framework to investigate the quantity theory of money and the effffect of expected inflflation on output and welfare, based on the Rocheteau and Wright (2005) model of monetary exchange. We compare a laissez-faire policy with a fifixed money supply and three policies to engineer constant money growth, where newly issued money is used to fifinance government spending, lump-sum transfers, and proportional transfers, respectively. The experimental results are largely consistent with theory. The quantity theory of money holds, and higher money growth leads to higher inflflation. Relative to laissez-faire, output and welfare are signifificantly lower with government spending, output is signifificantly lower with lump-sum transfers, while there are no signifificant real effffects with proportional transfers. A substantial deviation from theory is that the detrimental effffect of money growth depends on the implementation scheme and is weaker with lump-sum transfers relative to government spending.

Introduction:

Janet Hua Jiang is a research advisor of the Bank of Canada’s Currency Department. Her research interests include Money and Banking, Monetary Economics, Experimental Macroeconomics, Experimental Finance.

Your participation is warmly welcomed.