A Quantitative Easing Experiment

37 Pages Posted: 29 Nov 2017

See all articles by Adrian Penalver

Adrian Penalver

Banque de France

Nobuyuki Hanaki

Osaka University - Institute of Social and Economic Research

Eizo Akiyama

University of Tsukuba - Department of Social Systems and Management

Yukihiko Funaki

Waseda University, School of Political Science and Economics

Ryuichiro Ishikawa

Waseda University-SILS

Multiple version iconThere are 2 versions of this paper

Date Written: November 23, 2017

Abstract

This paper presents experimental evidence that quantitative easing can be effective in raising bond prices even if bonds and cash are perfect substitutes and the path of interest rates is fixed. Despite knowing the fundamental value of bonds, participants in the experiment clearly believed that bond prices would trade above this value when they knew that a central bank would buy a large fraction of the outstanding market in a quantitative easing operation. By contrast, there was no average deviation of prices from fundamentals when it was known that trading only occurred between participants themselves. Prices rose and then fell if the central bank bought and then sold but stayed high if the central bank held the bonds to maturity.

Suggested Citation

Penalver, Adrian and Hanaki, Nobuyuki and Akiyama, Eizo and Funaki, Yukihiko and Ishikawa, Ryuichiro, A Quantitative Easing Experiment (November 23, 2017). Available at SSRN: https://ssrn.com/abstract=3076941 or http://dx.doi.org/10.2139/ssrn.3076941

Adrian Penalver (Contact Author)

Banque de France ( email )

Paris
France

Nobuyuki Hanaki

Osaka University - Institute of Social and Economic Research ( email )

6-1, Mihogaoka
Suita, Osaka 567-0047
Japan

Eizo Akiyama

University of Tsukuba - Department of Social Systems and Management ( email )

Japan

Yukihiko Funaki

Waseda University, School of Political Science and Economics ( email )

1-6-1 Nishi-Waseda
Shinjuku-ku, Tokyo 169-8050, Tokyo 169-8050
Japan

Ryuichiro Ishikawa

Waseda University-SILS ( email )

Shinjuku, Tokyo 1658050
Japan

HOME PAGE: http://www.f.waseda.jp/r.ishikawa/

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