Money Illusion and Nominal Inertia in Experimental Asset Markets
Research output: Working paper › Research
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.
Original language | English |
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DOIs | |
Publication status | Published - 29 Nov 2008 |
Series | Univ. of Copenhagen Dept. of Economics Discussion Paper |
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Number | 08-29 |
- money illusion, nominal inertia, asset market bubble, nominal loss aversion, laboratory experiment
Research areas
ID: 241647279