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An Experimental Analysis Of The Effect Of Quantitative Easing

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  • Adrian Penalver, Nobuyuki Hanaki, Eizo Akiyama, Yukihiko Funaki, Ryuichiro Ishikawa

Abstract

In this paper we report the results of a repeated experiment in which a central bank buys bonds for cash in a quantitative easing (QE) operation in an otherwise standard asset market setting. The experiment is designed so that bonds have a constant fundamental value which is not affected by QE under rational expectations. By repeating the same experience three times, we investigate whether participants learn that prices should not rise above the fundamental price in the presence of QE (as found in (Penalver et al., 2017)). We find that some groups do learn this but most do not, instead becoming more convinced that QE boosts bond prices. These claims are based on significantly different behaviour of two treatment groups relative to a control group that doesn't have QE.

Suggested Citation

  • Adrian Penalver, Nobuyuki Hanaki, Eizo Akiyama, Yukihiko Funaki, Ryuichiro Ishikawa, 2018. "An Experimental Analysis Of The Effect Of Quantitative Easing," Working papers 684, Banque de France.
    • Handle: RePEc:bfr:banfra:684
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    Cited by:

    1. Hommes, Cars, 2018. "Behavioral & experimental macroeconomics and policy analysis: a complex systems approach," Working Paper Series 2201, European Central Bank.

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    More about this item

    Keywords

    Quantitative Easing; Experimental Asset Markets;

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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