Event summary

Isabelle is a Principal Researcher in the Financial Markets Department of the Bank of Canada, and a research fellow at the University of Amsterdam (School of Economics). She is also an Associate Editor of the Journal of Economic Interaction and Coordination and of the Journal of Economic Dynamics and Control. Isabelle holds a PhD in Economics from Bordeaux University (2012). Her research consists in developing models of the economy that incorporate heterogeneity and bounded rationality in the agents’ behaviors and expectation formation process. She also uses lab experiments to gain empirical insights on those behaviors. The resulting models include agent-based models and learning models with heterogeneous and interacting agents. She has used those models for the analysis of macroeconomic questions, in particular monetary and fiscal policy design, central bank communication, and prudential policy and financial regulation. Her research has been published widely in journals such as Journal of Economic Theory; Economic Inquiry; Journal of Economic Behavior & Organization; Macroeconomic Dynamics among others.

Abstract:
This paper compares alternative monetary policy regimes within a controlled lab environment, where groups of participants are tasked with repeatedly fore- casting inflation in a simple macroeconomic model featuring only the dynamics of interest rates, inflation and inflation expectations. Average-inflation targeting can approximate the price path observed under price-level targeting in the pres- ence of disinflationary shocks and enable subjects to coordinate on simple heuris- tics that reflect the concern of the central bank for past inflation gaps. However, this depends on the exact specification of the policy rule. In particular, if the central bank considers more than two lags, subjects fail to form expectations that are consistent with the monetary policy rule, which results in greater inflation volatility. Reinforcing communication around the target helps somewhat anchor long- run inflation expectations.

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