A Classroom Experiment in Monetary Policy Title for running header: A Classroom Experiment in Monetary Policy

We propose a classroom experiment implementing a simple version of a New Keynesian model that is suitable for courses in intermediate macroeconomics and money and banking. Students play either the role of the central bank or members of the private sector. The central banker is charged with setting interest rates so as to meet twin objectives for inflation and the output gap. Alternatively, the central banker is charged with meeting a target for inflation only. In both settings, private sector agents are concerned with correctly forecasting the inflation rate. We show that an experiment implementing this setup is feasible and yields results that enhance understanding and knowledge of the New Keynesian model of monetary policy. We provide suggestions for discussing the experimental results with students.