“A Classroom Inflation Uncertainty Experiment”

We have just added a new experiment: “A Classroom Inflation Uncertainty Experiment” by Denise Hazlett (IREE 2007).

The paper is available on the site of the journal, and the game is in the “macro section” on our site.




Abstract of the paper:

This classroom experiment uses a double oral auction credit market to demonstrate how inflation uncertainty causes a wealth transfer between borrowers and lenders. The experiment also shows the social cost of inflation uncertainty when borrowers and lenders cannot agree on a nominal interest rate that compensates each for their risk. In this case, the credit market fails to allocate funds to the highest-valued investment projects. The experiment provides hands-on experience with the effects of anticipated and unanticipated inflation, giving students a common background for a discussion of the economic costs of inflation. It can be used in principles, intermediate macroeconomics,money and banking, or financial economics courses, with 8–60 students…”

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