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Penalver, Adrian
Hanaki, Nobuyuki
Akiyama, Eizo
Funaki, Yukihiko
Year of Publication: 
Series/Report no.: 
ISER Discussion Paper No. 1094
We experimentally investigate the effect of a central bank buying bonds for cash in a quantitative easing (QE) operation. In our experiment, the bonds are perfect substitutes for cash and have a constant fundamental value which is not affected by QE in the rational expectations equilibrium. We find that QE raises bond prices above those in the benchmark treatment without QE. Subjects in the benchmark treatment learned to trade the bonds at their fundamental value but those in treatments with QE became more convinced after repeated exposure to the same treatment that QE boosts bond prices. This suggests the possibility of a behavioural channel for the observed effects of actual QE operations on bond yields.
Quantitative easing
experimental asset market
expectation dynamics
Document Type: 
Working Paper

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