Money illusion and nominal inertia in experimental asset markets

C.N. Noussair, G. Richter, J.R. Tyran

Research output: Contribution to journalArticleScientificpeer-review

Abstract

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 languageEnglish
Pages (from-to)27-37
JournalJournal of Behavioral Finance
Volume13
Issue number1
Publication statusPublished - 2012

Fingerprint

Inertia
Experimental asset markets
Money illusion
Asset markets
Fundamental values
Price response
Exogenous shocks
Asymmetry
Assets
Market price

Cite this

Noussair, C. N., Richter, G., & Tyran, J. R. (2012). Money illusion and nominal inertia in experimental asset markets. Journal of Behavioral Finance, 13(1), 27-37.
Noussair, C.N. ; Richter, G. ; Tyran, J.R. / Money illusion and nominal inertia in experimental asset markets. In: Journal of Behavioral Finance. 2012 ; Vol. 13, No. 1. pp. 27-37.
@article{62513d8e48ae456d930bfda64473073c,
title = "Money illusion and nominal inertia in experimental asset markets",
abstract = "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.",
author = "C.N. Noussair and G. Richter and J.R. Tyran",
year = "2012",
language = "English",
volume = "13",
pages = "27--37",
journal = "Journal of Behavioral Finance",
issn = "1542-7560",
publisher = "Taylor and Francis Ltd.",
number = "1",

}

Noussair, CN, Richter, G & Tyran, JR 2012, 'Money illusion and nominal inertia in experimental asset markets', Journal of Behavioral Finance, vol. 13, no. 1, pp. 27-37.

Money illusion and nominal inertia in experimental asset markets. / Noussair, C.N.; Richter, G.; Tyran, J.R.

In: Journal of Behavioral Finance, Vol. 13, No. 1, 2012, p. 27-37.

Research output: Contribution to journalArticleScientificpeer-review

TY - JOUR

T1 - Money illusion and nominal inertia in experimental asset markets

AU - Noussair, C.N.

AU - Richter, G.

AU - Tyran, J.R.

PY - 2012

Y1 - 2012

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.

M3 - Article

VL - 13

SP - 27

EP - 37

JO - Journal of Behavioral Finance

JF - Journal of Behavioral Finance

SN - 1542-7560

IS - 1

ER -