“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.

 

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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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