Taking Stock: A Rigorous Modelling of Animal Spirits in Macroeconomics

Franke, Reiner; Westerhoff, Frank

doi:10.1111/joes.12219

Cited by 47 publications

(19 citation statements)

References 72 publications

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“…Other choices range from regressive techniques to rational expectations. The interested reader is referred to the excellent work of Franke and Westerhoff (2017) and references therein for a survey of modelling of animal spirits.…”

Section: The Role Of Expectations On Credit Demandmentioning

confidence: 99%

Income inequality, consumption, credit and credit risk in a data-driven agent-based model

Παπαδόπουλος

2019

Journal of Economic Dynamics and Control

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The issue of income inequality occupies a prominent position in the research agenda of academic and policy circles alike, especially after the crisis of 2008, due to its potential causal link with the development of credit bubbles and therefore the emergence of financial crises. This paper examines the long-run effect of income inequality on consumption, consumer credit and non-performing loans through the means of a datadriven agent-based model. The data-driven nature of the model enhances its ability to match historical series and thus makes it suitable for policy simulations tailored for specific economies. The analysis indicates that higher income inequality has a detrimental impact on consumption and is associated with lower volumes of consumer credit. However, the ratio of non-performing loans as a share of total loans seems to be independent of income inequality.

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Section: The Role Of Expectations On Credit Demandmentioning

confidence: 99%

Income inequality, consumption, credit and credit risk in a data-driven agent-based model

Παπαδόπουλος

2019

Journal of Economic Dynamics and Control

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“…Such transition rates, which yield the evolution equation different from equation ( 11), may be unrealistic as they are asymptotically unbounded. In addition, the transition rates given by equations (10) patch up the differences, discussed in Franke and Westerhoff (2017), between the transition probability (Weidlich andHaag 1983, Lux 1995) and discrete choice Hommes 1997, 1998) approaches to modeling opinion dynamics.…”

Section: Derivation Of Model Equationsmentioning

confidence: 99%

An endogenous mechanism of business cycles

Kroujiline

Gusev

Ushanov

et al. 2019

Algorithmic Finance

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This paper suggests that business cycles may be a manifestation of coupled real economy and stock market dynamics and describes a mechanism that can generate economic fluctuations consistent with observed business cycles. To this end, we seek to incorporate into the macroeconomic framework a dynamic stock market model based on opinion interactions (Gusev et al., 2015). We derive this model from microfoundations, provide its empirical verification, demonstrate that it contains the efficient market as a particular regime and establish a link through which macroeconomic models can be attached for the study of real economy and stock market interaction. To examine key effects, we link it with a simple macroeconomic model (Blanchard, 1981). The coupled system generates nontrivial endogenous dynamics, which exhibit deterministic and stochastic features, producing quasiperiodic fluctuations (business cycles). We also inspect this system's behavior in the phase space. The real economy and the stock market coevolve dynamically along the path governed by a stochastically-forced dynamical system with two stable equilibria, one where the economy expands and the other where it contracts, resulting in business cycles identified as the coherence resonance phenomenon. Thus, the incorporation of stock market dynamics into the macroeconomic framework, as presented here, allows the derivation of realistic behaviors in a tractable setting.Note that the price drift is positive provided > * 2 ⁄ , which means that, in the long run, good news reflective of technological progress must (approximately) exceed expectations to sustain the longterm growth.Hence, as expected, model (11-13) does not refute the efficient market model but instead encompasses it as a particular case. To sum up, the results reported so far enable us to reasonably conclude that model (11)(12)(13), derived from first principles, establishes a general, tractable and credible 14 Blanchard (1981) also included a fiscal policy term. We do not consider policy effects in this work. 15 Equation (17) can be obtained, as a limiting case, from a dynamic extension of Cobb-Douglas production,where output adjusts over time to changes in capital subject to credit frictions (Gusev et al, 2019).

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“…A comprehensive review of expectation formations in macroeconomics can be found in Assenza et al. ( 2013 ) and Franke and Westerhoff ( 2018 ).…”

Section: Introductionmentioning

confidence: 99%

Macroeconomic dynamics under bounded rationality: on the impact of consumers’ forecast heuristics

Jang

Sacht

2022

J Econ Interact Coord

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This paper considers various types of forecast heuristics to examine the effects of boundedly rational agents on macroeconomic dynamics. Given the baseline New Keynesian model, we seek to find the expectation formation process that is most suitable in describing economic adjustments over the business cycle. In particular, impulse response analysis is used to compare the performances of the macroeconomic model under bounded rationality and under rational expectations. The results show that the fluctuations in consumer confidence mainly explain the degree of persistence in consumption. We conclude that a model under bounded rationality with a heuristic-induced switching process can qualitatively provide a good fit to the data that is equivalent to a model under rational expectations.

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Taking Stock: A Rigorous Modelling of Animal Spirits in Macroeconomics

Cited by 47 publications

References 72 publications

Income inequality, consumption, credit and credit risk in a data-driven agent-based model

Income inequality, consumption, credit and credit risk in a data-driven agent-based model

An endogenous mechanism of business cycles

Macroeconomic dynamics under bounded rationality: on the impact of consumers’ forecast heuristics

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