Experimental Evidence on Currency Competition in Integrated Economies

Last registered on October 18, 2024

View Trial History

Pre-Trial

Trial Information

General Information

Title

Experimental Evidence on Currency Competition in Integrated Economies

RCT ID

AEARCTR-0014493

Initial registration date

October 08, 2024

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published

October 18, 2024, 4:43 PM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

Country

United States of America

Region

Primary Investigator

Name

Marcos Cardozo

Affiliation

Universidad Católica del Uruguay

Contact Primary Investigator

Other Primary Investigator(s)

PI Name

Yarolsav Rosokha

PI Affiliation

Purdue University

Contact Investigator

PI Name

Cathy Zhang

PI Affiliation

Purdue University

Contact Investigator

Additional Trial Information

Status

In development

Start date

2024-10-08

End date

2025-04-30

Keywords

Behavior

Additional Keywords

international currency, monetary policy, inflation, experimental macroeconomics

JEL code(s)

C92, D83, E40

Secondary IDs

Prior work

This trial does not extend or rely on any prior RCTs.

Abstract

This project intends to use laboratory experiments to study how economic integration and relative country sizes affect competition between two intrinsically worthless currencies as media of exchange. We design the experiments to implement a two-country, two-currency search model based on the theoretical work of Zhang (2014). In particular, in this project, we vary the degree of economic integration and relative country sizes. We then test the model's predictions on currency acceptance, trade, and welfare.

External Link(s)

Registration Citation

Citation

Cardozo, Marcos, Yarolsav Rosokha and Cathy Zhang. 2024. "Experimental Evidence on Currency Competition in Integrated Economies." AEA RCT Registry. October 18. https://doi.org/10.1257/rct.14493-1.0

Sponsors & Partners

Experimental Details

Interventions

Intervention(s)

Intervention (Hidden)

Intervention Start Date

2024-10-08

Intervention End Date

2025-04-30

Primary Outcomes

Primary Outcomes (end points)

1. Inflation rates: coefficient of regression of log prices (in CM stage) per round, using dummy treatments and controls
2. Foreign currency acceptance rates: Proportion of times sellers accept foreign currency in the Decentralized Market (DM)
3. Welfare: Measured as utility of consumption minus disutility of production in the DM

Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)

Secondary Outcomes (explanation)

Experimental Design

The experiment investigates the effects of economic integration on inflation, currency use, and welfare in a two-country environment. The key treatment variables are country sizes and their economic integration parameter, using a between subjects design with three treatments:
1. Same size, Low integration
2. Same size, High integration
3. Different sizes. One country's integration is matched to treatment 1, while the other country's integration is matched to treatment 2.

Experimental Design Details

Specific parameters:
1. Low: Same size and integration parameter of 0.25 for both countries
2. High: Same size and integration parameter of 0.50 for both countries
3. Different sizes: One country is twice as big as the other, with the integration parameter of the biggest country equal to 0.25 and 0.50 in the other country

Subjects complete a comprehension test embedded within the instructions. The highest-scoring 80% of subjects continue with the main treatments, while the remaining subjects only interact with each other and are not included in any of the treatments.

The experiment uses a random termination protocol to implement an infinite horizon, with a discount factor of 0.8. Each session consists of multiple sequences of indefinite length. Sequences lengths are pre-drawn.

Within each round, subjects participate in two stages:
1. Centralized Market (CM): Subjects trade in a competitive market
2. Decentralized Market (DM): Subjects are randomly matched for bilateral trade
Subjects alternate roles as buyers and sellers between stages. In the CM, competitive pricing is implemented through a market game. In the DM, bargaining follows the Kalai solution.

To aid decision-making, subjects receive detailed instructions, including visual aids and interactive graphs showing token growth schedules. The computer interface provides real-time feedback on the consequences of potential decisions.

The experiment tests three main hypotheses related to:
1. Inflation rates across treatments and currencies
2. Foreign currency acceptance rates
3. Welfare effects of different country sizes and economic integration parameter values

Randomization Method

Individual subjects

Randomization Unit

Individual subjects

Was the treatment clustered?

Experiment Characteristics

Sample size: planned number of clusters

224 individuals

Sample size: planned number of observations

224 individuals

Sample size (or number of clusters) by treatment arms

4 session for each of 3 treatments, treatments 'Low' and 'High' have 16 subjects per session, and treatment 'Asymmetric' has 24 subjects per session, thus 2*4*(16) + 4*(24) = 224.

Minimum detectable effect size for main outcomes (accounting for sample design and clustering)

Supporting Documents and Materials

IRB