Money Illusion and Nominal Inertia in Experimental Asset Markets
Gregers Richter and
Jean-Robert Tyran ()
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Gregers Richter: Sydbank, Schweiz
No 08-29, Discussion Papers from University of Copenhagen. Department of Economics
We test whether large but purely nominal shocks affect real asset market prices. We subject a laboratory asset market to an exogenous shock, which either inflates or deflates the nominal fundamental value of the asset, while holding the real fundamental value constant. After an inflationary shock, nominal prices adjust upward rapidly and we observe no real effects. However, after a deflationary shock, nominal prices display considerable inertia and real prices adjust only slowly and incompletely toward the levels that would prevail in the absence of a shock. Thus, an asymmetry is observed in the price response to inflationary and deflationary nominal shocks.
Keywords: money illusion; nominal inertia; asset market bubble; nominal loss aversion; laboratory experiment (search for similar items in EconPapers)
JEL-codes: C9 E40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-exp and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:0829
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