Chapter 14: Experiments in macroeconomics: methods and applications
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This chapter lays out in what ways laboratory experiments can be useful for macroeconomics and discusses some of the methods used in such experiments. Among the main advantages are: bench-testing of alternative policies, capturing strategic uncertainty and biases from standard preferences or Bayesian updating, and accounting for heterogeneity in agents’ expectations and behavior. It is explained how DSGE models are implemented in laboratory experiments and how heuristic switching models can be used to analyze expectations out of equilibrium. A short literature review provides some results from direct tests of the various elements of microfoundation on which DSGE models are built. The methods of testing consumption smoothing and informational frictions are discussed in more detail. While experimental macroeconomics is a growing field, which has been useful in many respects, this chapter also discusses its challenges and limitations.

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Edited by Arthur Schram and Aljaž Ule