Modigliani-Cohn hypothesis revisited, experimental approach

Widespread application of macroeconomic models with explicit micro-foundations since rational expectations revolution in 1970’s gave birth to experimental macroeconomics recently. In this sense, experimental economics represents unique tool, where controlled environment might be used to get insights regarding the effects of alternative institutions and policies with direct implications at the aggregate level.
The aim of this project is to conduct series of macroeconomic experiments focused on investigation of behaviour of investors in financial market in light of Modigliani-Cohn hypothesis (1979). Since investors tend to suffer from certain forms of money illusion, they tend to target the nominal interest rate rather than real interest rate, which leads to suboptimal behavior in financial markets. Many empirical studies tried to examine this issue, with inconclusive results. However, according to our knowledge, no experimental investigation of this phenomena has been developed so far. As a result we believe that we might contribute to current literature on this topic and bring more light into this problematic.