How long is forever in the laboratory? : three implementations of an infinite-horizon monetary economy / by Janet Hua Jiang, Daniela Puzzello, Cathy Zhang.: FB3-5/2021-16E-PDF

"We compare three implementation schemes of an infinite-horizon monetary economy with discounting. Under the standard random termination scheme and its block variation, the economy lasts for an indefinite number of periods and the discounting factor is captured by the probability that the economy continues to the next period. These schemes rely on the belief that the experimenter can credibly implement a game that lasts an arbitrarily long time. We also propose a new method that does not rely on such a belief. Under this scheme, subjects participate in an experiment for a fixed number of periods where the discount factor is captured by a weighting factor that shrinks the payoffs over time. Dynamic incentives are preserved by paying subjects their continuation value, which is based on past market prices. The results show that dynamic incentives are preserved, and behavior is similar in all three implementations. Researchers may decide among these approaches, depending on the research question of interest and more practical concerns, such as the ease of implementation and the need to collect data for multiple super games when the discount factor is high"--Abstract, page ii.

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Publication information
Department/Agency Bank of Canada, issuing body.
Title How long is forever in the laboratory? : three implementations of an infinite-horizon monetary economy / by Janet Hua Jiang, Daniela Puzzello, Cathy Zhang.
Series title Staff working paper = Document de travail du personnel, 1701-9397 ; 2021-16
Publication type Series - View Master Record
Language [English]
Format Electronic
Electronic document
Note(s) "Last updated: April 5, 2021."
Includes bibliographical references (pages 29-32).
Publishing information Ottawa, Ontario, Canada : Bank of Canada = Banque du Canada, 2021.
©2021
Author / Contributor Jiang, Janet Hua, author.
Description 1 online resource (ii, 46 pages) : charts.
Catalogue number
  • FB3-5/2021-16E-PDF
Subject terms Monetary policy -- Econometric models.
Banks and banking, Central -- Research.
Politique monétaire -- Modèles économétriques.
Banques centrales -- Recherche.
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