Monetary policy and asset price bubbles: a laboratory experiment
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- dc.contributor.author Galí, Jordi
- dc.contributor.author Giusti, Giovanni
- dc.contributor.author Noussair, Charles N.
- dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
- dc.date.accessioned 2024-11-14T10:10:14Z
- dc.date.available 2024-11-14T10:10:14Z
- dc.date.issued 2020-05-01
- dc.date.modified 2024-11-14T10:06:44Z
- dc.description.abstract Advocates of a Leaning-Against-the-Wind monetary policy have claimed that such a policy can moderate asset price bubbles. On the other hand, there are compelling theoretical arguments that the policy would have the opposite effect. We study the effect of monetary policy on asset prices in a laboratory experiment with an overlapping generations structure. Participants in the role of the young generation allocate their endowment between two investments: a risky asset and a one-period riskless bond. The risky asset pays no dividend and thus capital gains are its only source of value. Consequently, its price is a pure bubble. We study how variations in the interest rate affect the evolution of the bubble in an experiment with three treatments. One treatment has a fixed low interest rate, another a fixed high interest rate, and the third has a Leaning-Againstthe-Wind interest rate policy in effect. We observe that the bubble increases (decreases) when interest rates are lower (higher) in the period of a policy change. However, the opposite effect is observed in the following period, when higher (lower) interest rates are associated with greater (smaller) bubble growth. Direct measurement of expectations reveals a Trend-Following component.
- dc.format.mimetype application/pdf*
- dc.identifier https://econ-papers.upf.edu/ca/paper.php?id=1726
- dc.identifier.citation Journal of Economic Dynamics and Control 130, 2021, 1-15.
- dc.identifier.uri http://hdl.handle.net/10230/68684
- dc.language.iso eng
- dc.relation.ispartofseries Economics and Business Working Papers Series; 1726
- dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
- dc.rights.accessRights info:eu-repo/semantics/openAccess
- dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
- dc.subject.keyword
- dc.subject.keyword Macroeconomics and International Economics
- dc.title Monetary policy and asset price bubbles: a laboratory experiment
- dc.title.alternative
- dc.type info:eu-repo/semantics/workingPaper