A Quantitative Easing Experiment
36 Pages Posted: 6 Dec 2017
Date Written: December 2017
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 believed that bond prices would exceed this value when they knew that a central bank would buy a large fraction of the market in a quantitative easing operation. By contrast, there was no average deviation of prices from fundamentals when trading only occurred between participants themselves.
Keywords: Quantitative Easing, Experimental asset markets
JEL Classification: C90, D84, G21
Suggested Citation: Suggested Citation