J of Money Credit Banking - 2023 - HENNEQUIN - Managing Bubbles in Experimental Asset Markets with Monetary Policy.pdf (571.03 kB)
Managing bubbles in experimental asset markets with monetary policy
journal contribution
posted on 2023-06-10, 04:28 authored by Myrna Hennequin, Cars HommesWe study the effect of a “leaning against the wind” monetary policy on asset price bubbles in a learning-to-forecast experiment, where prices are driven by the expectations of market participants. We find that a strong interest rate response is successful in preventing or deflating large price bubbles, while a weak response is not. Giving information about the interest rate changes and communicating the goal of the policy increases coordination of expectations and has a stabilizing effect. When the steady state fundamental price is unknown and the interest rate rule is based on a proxy instead, the policy is less effective.
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- Published
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- Published version
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Journal of Money, Credit and BankingISSN
0022-2879Publisher
WileyExternal DOI
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1-26Department affiliated with
- Economics Publications
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- Yes
Peer reviewed?
- Yes
Legacy Posted Date
2022-08-16First Open Access (FOA) Date
2022-08-16First Compliant Deposit (FCD) Date
2022-08-15Usage metrics
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