QE boosts bond prices above ‘fundamental’ level, Banque de France paper finds

The Banque de France

A working paper published by the Banque de France uses experimental economics to investigate how bond market participants react to quantitative easing (QE).

In An experimental analysis of the effect of quantitative easing, Adrian Penalver et al report on how they simulated a bond market in which a central bank participated. “The experiment is designed so that bonds have a constant fundamental value, which is not affected by QE under rational expectations,” the authors write.

The authors repeat

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