The impact of monetary policy on stock market bubbles and trading behavior: Evidence from the lab

Urs Fischbacher, Thorsten Hens and Stefan Zeisberger

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 10, 2104-2122

Abstract: We investigate the effect of monetary policy on stock market bubbles and trading behavior in experimental asset markets. We introduce the possibility of investing in interest bearing bonds to the widely used laboratory asset market design of Smith et al. (1988). Treatment groups face a variable interest rate policy which depends on asset prices, while control groups are subjected to a constant interest rate. We observe a strong impact of our interest rate policy on liquidity in the stock market but only a small impact on bubbles. However, we find that announcing the possibility of reserve requirements significantly reduces bubbles.

Keywords: Experimental economics; Investment behavior; Liquidity; Monetary policy; Asset market bubbles (search for similar items in EconPapers)
JEL-codes: C92 E42 E44 E52 E58 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:10:p:2104-2122

DOI: 10.1016/j.jedc.2013.04.004

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