Distributing scarce jobs and output: experimental evidence on the dynamic effects of rationing

Fenig, Guidon; Petersen, Luba

doi:10.1007/s10683-016-9507-y

“…In order for a participant to borrow (i.e., underwork relative to his consumption demands), another participant would be required to save (i.e., overwork). There are other possible rationing schemes under which theoretical predictions would be identical; Fenig and Petersen (2017) find that the priority rationing rule tends to generate stable and steady convergence to the competitive equilibrium compared to random queuing and equitable rationing schemes. the period after inflation was determined from aggregate outcomes and could become negative; that is, no zero lower bound was imposed.…”

Section: Experimental Designmentioning

confidence: 88%

“…We begin by introducing the experimental design implemented in all of our treatments and proceed to describe the treatment variations in the following subsection. Our experiment directly extends the production economy experiment of Fenig and Petersen (2017) by introducing an asset market and investment decisions. The experiment was designed to capture key features of a canonical monopolistic competition model with nominal rigidities (see for details).…”

Section: Experimental Designmentioning

confidence: 99%

“…Most closely related to our work are the inclusion of leverage constraints (Caginalp, Porter, and Smith (2000)), interest-bearing bonds (Fischbacher, Hens, and Zeisberger (2013)), Giusti, Jiang, and Xu (2016)), and consumption smoothing motives (Asparouhova et al (2016), Crockett and Duffy (2015)). Our experiment also builds on the structure of earlier production economy experiments used to study macroeconomic dynamics related to economic growth (Lei and Noussair (2002)), money supply and credit on production and demand (Bosch-Domènech and Silvestre (1997), Lian and Plott (1998), Baeriswyl and Cornand (2015)), rationing (Fenig and Petersen (2017)), and stochastic shocks (Noussair et al (2014(Noussair et al ( , 2015, Petersen (2015)).…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Deflating asset price bubbles with leverage constraints and monetary policy

Fenig

¹

,

Mileva

²

,

Petersen

³

2018

Journal of Economic Behavior & Organization

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This paper studies the interaction of labor, goods, and asset markets in experimental macroeconomies populated by household investors. We analyze the aggregate effects of two different policies intended to stabilize asset prices: leverage constraints and a 'leaning against the wind' monetary policy that raises interest rates in response to asset price inflation. We find that introducing a leverage constraint significantly reduces asset prices when the constraint actually binds. Households often circumvent these constraints by excessively supplying labor and generating increased wealth which can be used for speculation. As a result, asset price deviations are significantly higher under a policy regime of leverage constraints. Raising interest rates according to a 'leaning against the wind' policy effectively contracts asset prices with minimal impact on production. Our experimental findings suggest that asset inflation targeting is more effective than leverage constraints at stabilizing asset prices.

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“…Most closely related to our work are the inclusion of leverage constraints (Caginalp, Porter, and Smith (2000)), interest-bearing bonds (Fischbacher, Hens, and Zeisberger (2013)), Giusti, Jiang, and Xu (2016)), and consumption smoothing motives (Asparouhova et al (2016), Crockett and Duffy (2015)). Our experiment also builds on the structure of earlier production economy experiments used to study macroeconomic dynamics related to economic growth (Lei and Noussair (2002)), money supply and credit on production and demand (Bosch-Domènech and Silvestre (1997), Lian and Plott (1998), Baeriswyl and Cornand (2015)), rationing (Fenig and Petersen (2017)), and stochastic shocks (Noussair et al (2014(Noussair et al ( , 2015, Petersen (2015)).…”

Section: Introductionmentioning

confidence: 99%

Deflating Asset Price Bubbles with Leverage Constraints and Monetary Policy

Fenig

¹

,

Mileva

²

,

Petersen

³

2017

Self Cite

View full text Add to dashboard Cite

This paper studies the interaction of labor, goods, and asset markets in experimental macroeconomies populated by household investors. We analyze the aggregate effects of two different policies intended to stabilize asset prices: leverage constraints and a 'leaning against the wind' monetary policy that raises interest rates in response to asset price inflation. We find that introducing a leverage constraint significantly reduces asset prices when the constraint actually binds. Households often circumvent these constraints by excessively supplying labor and generating increased wealth which can be used for speculation. As a result, asset price deviations are significantly higher under a policy regime of leverage constraints. Raising interest rates according to a 'leaning against the wind' policy effectively contracts asset prices with minimal impact on production. Our experimental findings suggest that asset inflation targeting is more effective than leverage constraints at stabilizing asset prices.

show abstract