Pricking asset market bubbles

Noemi Schmitt and Frank Westerhoff

Finance Research Letters, 2021, vol. 38, issue C

Abstract: We propose an asset-pricing model in which investors switch between extrapolative and regressive expectation rules subject to an evolutionary fitness measure and show that central banks may tame endogenous expectations-driven boom-bust cycles by adjusting interest rates with a view to the market’s momentum.

Keywords: Boom-bust cycles; Expectation formation and learning; Interest rate policies (search for similar items in EconPapers)
JEL-codes: D84 E58 G12 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:38:y:2021:i:c:s154461231930844x

DOI: 10.1016/j.frl.2020.101441

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