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Asset Trading and Monetary Policy in Production Economies

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Abstract

This 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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  • Guidon Fenig & Mariya Mileva & Luba Petersen, 2013. "Asset Trading and Monetary Policy in Production Economies," Discussion Papers dp13-08, Department of Economics, Simon Fraser University, revised Aug 2014.
    • Handle: RePEc:sfu:sfudps:dp13-08
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    Cited by:

    1. Thomas Meissner, 2016. "Intertemporal consumption and debt aversion: an experimental study," Experimental Economics, Springer;Economic Science Association, vol. 19(2), pages 281-298, June.
    2. Schleich, Joachim & Gassmann, Xavier & Faure, Corinne & Meissner, Thomas, 2016. "Making the implicit explicit: A look inside the implicit discount rate," Energy Policy, Elsevier, vol. 97(C), pages 321-331.
    3. repec:hum:wpaper:sfb649dp2013-045 is not listed on IDEAS
    4. Luba Petersen & Guidon Fenig, 2015. "Distributing scarce jobs and output: Experimental evidence on the effects of rationing," Discussion Papers dp15-02, Department of Economics, Simon Fraser University.
    5. Giovanni Giusti & Janet Hua Jiang & Yiping Xu, 2014. "Interest on Cash, Fundamental Value Process and Bubble Formation on Experimental Asset Markets," Staff Working Papers 14-18, Bank of Canada.

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    More about this item

    Keywords

    Experimental macroeconomics; laboratory experiment; monetary policy; asset price bubbles; general equilibrium; production economy; debt aversion;
    All these keywords.

    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 - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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