Money Illusion and Nominal Inertia in Experimental Asset Markets

Publikation: Working paperForskning

Dokumenter

  • DP 08-29

    Forlagets udgivne version, 284 KB, PDF-dokument

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.
OriginalsprogEngelsk
UdgiverDepartment of Economics, University of Copenhagen
Antal sider29
StatusUdgivet - 2008

Bibliografisk note

JEL classification: C9, E40

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