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The impact of interest rate policy on individual expectations and asset bubbles in experimental markets. (English) Zbl 1425.91412

Summary: We run a learning-to-forecast experiment with an interest rate policy in which the interest rate will increase/lower sharply when the deviation of asset prices from the fundamental value moves above/below a threshold. Our results show that the average price deviation (“bubble”) is significantly lower in the treatments with the interest rate policy than in the baseline treatment without the policy. Additionally, our results suggest that the policy maintains its effectiveness regardless of whether the participants are informed about the policy objectives.

MSC:

91G30 Interest rates, asset pricing, etc. (stochastic models)
91B62 Economic growth models
91A90 Experimental studies
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