Money Illusion and Nominal Inertia in Experimental Asset Markets
Publikation: Working paper › Forskning
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Money Illusion and Nominal Inertia in Experimental Asset Markets. / Noussair, Charles N.; Richter, Gregers; Tyran, Jean-Robert.
Department of Economics, University of Copenhagen, 2008.Publikation: Working paper › Forskning
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TY - UNPB
T1 - Money Illusion and Nominal Inertia in Experimental Asset Markets
AU - Noussair, Charles N.
AU - Richter, Gregers
AU - Tyran, Jean-Robert
N1 - JEL classification: C9, E40
PY - 2008
Y1 - 2008
N2 - We 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.
AB - We 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.
KW - Faculty of Social Sciences
KW - asset market bubble
KW - nominal loss aversion
KW - laboratory experiment
M3 - Working paper
BT - Money Illusion and Nominal Inertia in Experimental Asset Markets
PB - Department of Economics, University of Copenhagen
ER -
ID: 8773053