The Impact of Interest Rate Policy on Individual Expectations and Asset Bubbles in Experimental Markets

Te Bao and Jichuan Zong
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Jichuan Zong: Laboratory of Experimental Economics and School of Finance, Dongbei University of Finance and Economics

No 1802, Economic Growth Centre Working Paper Series from Nanyang Technological University, School of Social Sciences, Economic Growth Centre

Abstract: Previous literature in experimental finance finds little support for the effectiveness of interest rate policy in stabilizing asset price bubbles. We run a learning to forecast experiment with an interest rate policy that is strongly responsive to deviation of asset prices from the fundamental. Our result shows that the average price deviation is significantly lower in the treatments with the interest rate policy than in the baseline treatment without the policy. Our result also suggests that the policy is effective irrespective of whether or not the purpose of it is announced/explained to the participants.

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)
Pages: 24 pages
Date: 2018-02
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Related works:
Journal Article: The impact of interest rate policy on individual expectations and asset bubbles in experimental markets (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:nan:wpaper:1802

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