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Expectationally-driven market volatility: An experimental study

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  • Ramon Marimon
  • Stephen E. Spear
  • Shyam Sunder

Abstract

We study the existence and robustness of expectationally-driven price volatility in experimental overlapping generation economies. In the theoretical model under study there exist “pure sunspot” equilibria which can be “learned” if agents use some adaptive learning rules. Our data show the existence of expectationally-driven cycles, but only after subjects have been exposed to a sequence of real shocks and “learned” a real cycle. In this sense, we show evidence of path-dependent price volatility.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 21.

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Date of creation: Mar 1993
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Handle: RePEc:upf:upfgen:21

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Web page: http://www.econ.upf.edu/

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  1. Spear, Stephen E. & Srivastava, Sanjay & Woodford, Michael, 1990. "Indeterminacy of stationary equilibrium in stochastic overlapping generations models," Journal of Economic Theory, Elsevier, vol. 50(2), pages 265-284, April.
  2. Evans, George W., 1989. "The fragility of sunspots and bubbles," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 297-317, March.
  3. Ramon Marimon & Shyam Sunder, 1993. "Indeterminacy of equilibria in a hyperinflationary world: Experimental evidence," Economics Working Papers 25, Department of Economics and Business, Universitat Pompeu Fabra.
  4. Evans, George W., 1986. "Selection criteria for models with non-uniqueness," Journal of Monetary Economics, Elsevier, vol. 18(2), pages 147-157, September.
  5. Lim, Suk S & Prescott, Edward C & Sunder, Shyam, 1994. "Stationary Solution to the Overlapping Generations Model of Fiat Money: Experimental Evidence," Empirical Economics, Springer, vol. 19(2), pages 255-77.
  6. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
  7. Spear, Stephen E., 1984. "Sufficient conditions for the existence of sunspot equilibria," Journal of Economic Theory, Elsevier, vol. 34(2), pages 360-370, December.
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