We investigate the effect of inflation on output and welfare in the laboratory. Consistent with monetary theory, we find that inflation acts as a tax on monetary exchange and reduces output and welfare.
Standard monetary models adopt an infinite horizon with discounting. Testing these models in the lab requires implementing this horizon within a limited time frame. We compare three approaches to such an implementation and discuss their relative advantages.
We investigate competition between two intrinsically worthless currencies as a result of decentralized interactions between human subjects. We design a laboratory experiment based on a simple two-country, two-currency search model to study factors that affect circulation patterns and equilibrium selection.