Money Illusion and Nominal Inertia in Experimental Asset Markets
AbstractWe 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.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 08-29.
Length: 19 pages
Date of creation: Nov 2008
Date of revision:
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money illusion; nominal inertia; asset market bubble; nominal loss aversion; laboratory experiment;
Find related papers by JEL classification:
- C9 - Mathematical and Quantitative Methods - - Design of Experiments
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-12-01 (All new papers)
- NEP-CBA-2008-12-01 (Central Banking)
- NEP-EXP-2008-12-01 (Experimental Economics)
- NEP-MAC-2008-12-01 (Macroeconomics)
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- Eizo Akiyama & Nobuyuki Hanaki & Ryuichiro Ishikawa, 2012. "Effect of Uncertainty about Others' Rationality in Experimental Asset Markets: An Experimental Analysis," Working Papers halshs-00793613, HAL.
- Thomas A. Stephens & Jean-Robert Tyran, 2012.
"“At least I didn’t lose money” - Nominal Loss Aversion Shapes Evaluations of Housing Transactions,"
12-14, University of Copenhagen. Department of Economics.
- Stephens, Thomas A & Tyran, Jean-Robert, 2012. "“At least I didn’t lose money” Nominal Loss Aversion Shapes Evaluations of Housing Transactions," CEPR Discussion Papers 9198, C.E.P.R. Discussion Papers.
- Eizo Akiyama & Nobuyuki Hanaki & Ryuchiro Ishikawa, 2012. "Effect of uncertainty about others’ rationality in experimental asset markets," AMSE Working Papers 1234, Aix-Marseille School of Economics, Marseille, France.
- Jürgen Huber & Michael Kirchler, 2012. "The impact of instructions and procedure on reducing confusion and bubbles in experimental asset markets," Experimental Economics, Springer, vol. 15(1), pages 89-105, March.
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