A monetary policy simulation game for the classroom

A computer game is presented that puts the player into the shoes of a central bank governor. The game is a stochastic simulation of a standard reduced form macro model, and the user interacts with this simulation by manipulating the interest rate. The decision problem that the player faces is in many ways quite realistic, in the following sense: Just as a real monetary authority, the player is confronted with a constant stream of shocks he cannot unambiguously identify, and his decisions affect the economy only with a considerable lag. These are two ingredients that make monetary policy decisions so challenging in reality, and that also make playing this game successfully rather difficult. The game can be used for undergraduate or continuing education classes. An "advanced mode" allows the teacher (or the student) to customize many aspects of the simulation, and to experiment with different calibrations or different monetary feedback rules.