Wealth, Cost, and Misperception: Empirical Estimation of Three Interaction Channels in a Financial-Macroeconomic Agent-Based Model

Jiri Kukacka and Erik Zila
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Erik Zila: Czech Academy of Sciences, Institute of Information Theory and Automation, Czechia & Charles University, Faculty of Social Sciences, Institute of Economic Studies

No 2024/22, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: Financial-macroeconomic agent-based models offer a promising avenue for understanding complex economic interactions, but their use is hindered by challenging empirical estimation. Our paper addresses this gap by constructing a stylized integrated model and estimating its core parameters using US data from 1954 to 2022. To tackle econometric obstacles, including mixed data frequencies, we adapt the simulated method of moments. We then focus on three key interaction channels. The stock market influences the real sector through the wealth effect, which boosts current consumption, and the cost effect, which lowers financing costs for firms. Conversely, the real economy impacts the stock market via the price misperception effect, where economic conditions help approximate the fundamental value of stocks. Our results provide strong statistical support for all three channels, offering novel empirical insights into critical dynamics between the two sectors of the economy.

Keywords: integrated agent-based model; behavioral finance and macroeconomics; bounded rationality; heuristic switching; simulated method of moments (search for similar items in EconPapers)
JEL-codes: C13 C53 E12 E71 G41 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2024-05, Revised 2024-05
New Economics Papers: this item is included in nep-cmp, nep-fdg and nep-hme
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