Similar Search Results

Brunnermeier, Markus K; Julliard, Christian - C.E.P.R. Discussion Papers - 2007

A reduction in inflation can fuel run-ups in housing prices if people suffer from money illusion. For example … account that inflation lowers future real mortgage costs. We decompose the price-rent ratio in a rational component — meant to … capture the proxy effect and risk premia — and an implied mispricing. We find that inflation and nominal interest rates …

Persistent link: https://www.econbiz.de/10005067397

Does Money Illusion Matter? An Experimental Approach

Fehr, Ernst; Tyran, Jean-Robert - C.E.P.R. Discussion Papers - 2000

Money illusion means that people behave differently when the same objective situation is represented in nominal terms rather than in real terms. This paper shows that seemingly innocuous differences in payoff representation cause pronounced differences in nominal price inertia indicating the...

Persistent link: https://www.econbiz.de/10005504787

“At least I didn’t lose money” Nominal Loss Aversion Shapes Evaluations of Housing Transactions

Stephens, Thomas A; Tyran, Jean-Robert - C.E.P.R. Discussion Papers - 2012

Loss aversion is one of the most robust findings to have emerged from behavioral economics. Surprisingly little attention, however, has been devoted to nominal loss aversion, the interaction of loss aversion and money illusion. People tend to think of transactions in terms of their nominal...

Persistent link: https://www.econbiz.de/10011083826

Equilibrium Asset Prices and Investor Behavior in the Presence of Money Illusion

Basak, Suleyman; Yan, Hongjun - C.E.P.R. Discussion Papers - 2009

inflation, the real short rate is negatively correlated with realized inflation, and money illusion may induce predictability …

Persistent link: https://www.econbiz.de/10005048554

Money Illusion and Coordination Failure

Fehr, Ernst; Tyran, Jean-Robert - C.E.P.R. Discussion Papers - 2004

Economists long considered money illusion to be largely irrelevant. Here we show, however, that money illusion has powerful effects on equilibrium selection. If we represent pay-offs in nominal terms, choices converge to the Pareto inefficient equilibrium; however, if we lift the veil of money...

Persistent link: https://www.econbiz.de/10005791766

Learning, Endogenous Indexation and Disinflation in the New-Keynesian Model

Wieland, Volker - C.E.P.R. Discussion Papers - 2008

episode price-setting firms' expect inflation to be highly persistent and opt for backward-looking indexation. As the central … that choose the rate for indexation also re-assess the likelihood that announced inflation targets determine steady …-state inflation and adjust indexation of contracts accordingly. A strategy of announcing and pursuing short-term targets for inflation …

Persistent link: https://www.econbiz.de/10005114241

The Gambler's and Hot-Hand Fallacies: Theory and Applications

Rabin, Matthew; Vayanos, Dimitri - C.E.P.R. Discussion Papers - 2007

We develop a model of the gambler's fallacy -- the mistaken belief that random sequences should exhibit systematic reversals. We show that an individual who holds this belief and observes a sequence of signals can exaggerate the magnitude of changes in an underlying state but underestimate their...

Persistent link: https://www.econbiz.de/10005504387

Biases of Professional Exchange Rate Forecasts: Psychological Explanations and an Experimentally-Based Comparison to Novices

Bofinger, Peter; Leitner, Johannes; Schmidt, Robert - C.E.P.R. Discussion Papers - 2004

The empirical performance of macroeconomic exchange rate models is more than disappointing. This dismal result is also reflected in the forecasting capabilities of professional analysts: all in all, analysts are not in a position to beat naïve random walk forecasts. The root for this deficient...

Persistent link: https://www.econbiz.de/10005504428

Hot Markets, Investor Sentiment and IPO Pricing

Ljungqvist, Alexander P.; Nanda, Vikram; Singh, Rajdeep - C.E.P.R. Discussion Papers - 2001

Our model of the initial public offering process links the three main empirical IPO ‘anomalies’ – underpricing, hot issue markets, and long-run underperformance – and traces them to a common source of inefficiency. We relate hot IPO markets (such as the 1999/2000 market for Internet...

Persistent link: https://www.econbiz.de/10005498165

The Real Effects of Investor Sentiment

Polk, Christopher; Sapienza, Paola - C.E.P.R. Discussion Papers - 2003

Does inefficiency of financial markets have real consequences? Or does it only result in transfers of wealth from noise traders to arbitrageurs? We study firm business investment to address this question. In our model, benevolent managers of overvalued companies invest in projects with negative...

Persistent link: https://www.econbiz.de/10005067581