Econ Research Seminar by King King Li (CityUHK) on Friday, Feb 2 2018
Neutrality by Aggregation: An Experimental Approach
Date: Friday, Feb 2
Time: 1-2pm
Venue: Room 1300
Abstract:
Neutrality of money is a widely accepted proposition among economists. But even when people in reality understand that money is neutral, neutrality may only be a realized outcome when people coordinate their actions well. We design a price-posting game in which money facilitates transactions to test whether people may be able to coordinate well in lab to obtain neutrality of money. We introduce a parameter, namely, waiting costs that permit us to compare the situation in which coordination is an issue with the situation in which it is not. When the cost is positive (but small), there are more than 60 symmetric mixed-strategy equilibria. When the cost is zero, there is a unique equilibrium. With or without the waiting costs, there is little nominal rigidity on the average price in the long run. But the waiting costs do play a substantial role. With the costs, behaviors of subjects depart a lot from any theoretical equilibrium and in particular, there are a substantial proportion of sellers who systematically over-respond to the nominal change and a substantial proportion of sellers who under-respond. On the aggregation level, neutrality obtains not because of that random errors offset each other but because of that systematic errors offset each other.
Prof. Li’s website:
https://www.cb.cityu.edu.hk/staff/kingkli/
Date: Friday, Feb 2
Time: 1-2pm
Venue: Room 1300
Abstract:
Neutrality of money is a widely accepted proposition among economists. But even when people in reality understand that money is neutral, neutrality may only be a realized outcome when people coordinate their actions well. We design a price-posting game in which money facilitates transactions to test whether people may be able to coordinate well in lab to obtain neutrality of money. We introduce a parameter, namely, waiting costs that permit us to compare the situation in which coordination is an issue with the situation in which it is not. When the cost is positive (but small), there are more than 60 symmetric mixed-strategy equilibria. When the cost is zero, there is a unique equilibrium. With or without the waiting costs, there is little nominal rigidity on the average price in the long run. But the waiting costs do play a substantial role. With the costs, behaviors of subjects depart a lot from any theoretical equilibrium and in particular, there are a substantial proportion of sellers who systematically over-respond to the nominal change and a substantial proportion of sellers who under-respond. On the aggregation level, neutrality obtains not because of that random errors offset each other but because of that systematic errors offset each other.
Prof. Li’s website:
https://www.cb.cityu.edu.hk/staff/kingkli/