The impact of interest rate policy on individual expectations and asset bubbles in experimental markets

Te Bao and Jichuan Zong

Journal of Economic Dynamics and Control, 2019, vol. 107, issue C, -

Abstract: We run a learning-to-forecast experiment with an interest rate policy in which the interest rate will increase/lower sharply when the deviation of asset prices from the fundamental value moves above/below a threshold. Our results show that the average price deviation (“bubble”) is significantly lower in the treatments with the interest rate policy than in the baseline treatment without the policy. Additionally, our results suggest that the policy maintains its effectiveness regardless of whether the participants are informed about the policy objectives.

Keywords: Interest rate policy; Asset bubble; Experimental economics; Learning-to-forecast experiment; Behavioral finance (search for similar items in EconPapers)
JEL-codes: C92 C93 D84 G01 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Related works:
Working Paper: The Impact of Interest Rate Policy on Individual Expectations and Asset Bubbles in Experimental Markets (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:107:y:2019:i:c:8

DOI: 10.1016/j.jedc.2019.103735

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