Heterogeneity of agents and exchange rate dynamics: Evidence from the EMS
Eelke de Jong,
Willem Verschoor and
Remco Zwinkels ()
Journal of International Money and Finance, 2010, vol. 29, issue 8, 1652-1669
Abstract:
We develop and estimate a dynamic heterogeneous agent model for the EMS period. Our empirical results suggest that the existence of heterogeneous interacting agents is indeed a possible explanation for the dynamics of exchange rates during the EMS. We find strong evidence of heterogeneous boundedly rational beliefs, and the fact that agents switch between these beliefs. Moreover, we show that the dynamic heterogeneous agent model outperforms the random walk and the static heterogeneous agents' model in out-of-sample forecasting in the large majority of country-horizon combinations.
Keywords: Heterogeneous; expectations; The; European; Monetary; System; Non-linear; modelling; Agent-based; finance (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:29:y:2010:i:8:p:1652-1669
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