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The distortionary effect of monetary policy: credit expansion vs. lump-sum transfers in the lab

Author

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  • Baeriswyl Romain

    (Swiss National Bank, Boersenstrasse 15, 8022 Zurich, Switzerland)

  • Cornand Camille

    (Université de Lyon, Lyon, F-69007, France)

Abstract

In an experimental monetary general equilibrium economy, we assess two processes of monetary injection: credit expansion vs. lump-sum monetary transfers. In theory, both processes are neutral and exert no real effect on allocation. In the experiment, however, credit expansion leads to substantial distortions of real allocation and relative prices, and exerts a redistributive effect across subjects. By contrast, an increase in money through lump-sum transfers does not distort real allocation.

Suggested Citation

  • Baeriswyl Romain & Cornand Camille, 2018. "The distortionary effect of monetary policy: credit expansion vs. lump-sum transfers in the lab," The B.E. Journal of Macroeconomics, De Gruyter, vol. 18(2), pages 1-30, June.
    • Handle: RePEc:bpj:bejmac:v:18:y:2018:i:2:p:30:n:4
    DOI: 10.1515/bejm-2017-0037
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    Cited by:

    1. Jiang, Janet Hua & Puzzello, Daniela & Zhang, Cathy, 2023. "Inflation, Output, and Welfare in the Laboratory," European Economic Review, Elsevier, vol. 152(C).
    2. Fenig, Guidon & Mileva, Mariya & Petersen, Luba, 2018. "Deflating asset price bubbles with leverage constraints and monetary policy," Journal of Economic Behavior & Organization, Elsevier, vol. 155(C), pages 1-27.
    3. Samuel Demeulemeester, 2024. "The case for 100% money: Ten reasons for separating money issuance from banking," Economic Affairs, Wiley Blackwell, vol. 44(1), pages 57-70, February.
    4. Guidon Fenig & Mariya Mileva & Luba Petersen, 2013. "Leave the bubble alone!: Deflating asset price bubbles in an experimental macroeconomy," Discussion Papers dp16-10, Department of Economics, Simon Fraser University, revised Aug 2016.

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    More about this item

    Keywords

    laboratory experiment; money neutrality; credit expansion; lump-sum monetary transfers;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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