Experimental Macroeconomics *

Experimental macroeconomics is a subfield of experimental economics that makes use of controlled laboratory methods to understand aggregate economic phenomena and to test the specific assumptions and predictions of macroeconomic models. Surveys of experimental macroeconomics are found in Ochs (1995), Duffy (1998) and Ricciuti (2004). Macroeconomic topics that have been studied in the laboratory include convergence to Walrasian competitive equilibrium [Lian and Plott (1998)], growth and development [Lei and Noussair (2003), Capra et al. (2005)], specialization and trade [Noussair et al. (1995)], Keynesian coordination failures [Cooper (1999), Van Huyck et al. 1990], the use of money as a medium of exchange [Brown (1996), Duffy and Ochs (1999, 2002)] and as a store of value [McCabe (1989), Lim et al. (1994), Marimon and Sunder (1993, 1994)], exchange rate determination [Arifovic (1996), Noussair et al. (1997)], money illusion [Fehr and Tyran (2001)], asset price bubbles and crashes [Smith et al. (1988), Lei et al. (2001), Hommes et al. (2005)] sunspots [Spear et al. (1993), Duffy and Fisher (2005)], bank runs [Schotter and Yorulmazer (2003), Garratt and Keister (2005)], contagions [Corbae and Duffy (2005)], speculative currency attacks [Heinemann et al. (2003)], and the economic impact of various fiscal and monetary policies [Riedl and Van Winden (2001), Arifovic and Sargent (2003), Marimon and Sunder (1994), Bernasconi and Kirchkamp (2000)]. The use of laboratory experiments, involving small groups of subjects interacting with one another for short periods of time, to analyze aggregate, economy-wide phenomena or to test macroeconomic model predictions or assumptions might be met with some skepticism. However, there are many insights to be gained from controlled laboratory experimentation that cannot be obtained using standard macroeconometric approaches, i.e., econometric analyses of the macroeconomic data reported by government agencies. Often the data most relevant to testing a macroeconomic model are simply unavailable. There may also be identification, endogeneity and equilibrium selection issues that cannot be satisfactorily addressed using econometric methods. Indeed, Robert Lucas (1986) was the first macroeconomist to make such observations and he invited laboratory tests ∗Prepared for the New Palgrave Dictionary of Economics, 2nd edition. I thank Jack Ochs for his comments and suggestions.