Asset Trading and Monetary Policy in Production Economies
AbstractThis paper studies the effects of monetary policy on asset trading and production in a laboratory economy. Participants play the role of household investors who make consumption, labor, and investment decisions. Introducing asset markets to the economy does not generate significant real effects. Prohibiting borrowing for speculation leads to increased precautionary saving through higher, more stable labor supply and smaller bubbles, but increases asset price volatility. In contrast, a “leaning against the wind" interest rate policy decreases labor supply but effectively stabilizes asset prices and reduces overall deviations from fundamentals. Indebtedness is an important source of heterogeneity driving participants decisions.
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Bibliographic InfoPaper provided by Department of Economics, Simon Fraser University in its series Discussion Papers with number dp13-08.
Date of creation: Sep 2013
Date of revision: Aug 2014
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Postal: Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, V5A 1S6, Canada
Web page: http://www.sfu.ca/economics.html
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Postal: Working Paper Coordinator, Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, V5A 1S6, Canada
Find related papers by JEL classification:
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-02 (All new papers)
- NEP-EXP-2013-10-02 (Experimental Economics)
- NEP-MON-2013-10-02 (Monetary Economics)
- NEP-UPT-2013-10-02 (Utility Models & Prospect Theory)
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