 A heterogeneous agent exchange rate model with speculators and non-speculatorsJournal of Macroeconomics, 2016, vol. 49, issue C, 203-223 Abstract: This paper constructs a heterogeneous agent exchange rate model of speculators and non-speculators from a simple monetary framework. The model replaces rational expectations with an adaptive learning rule that forecasts future exchange rates with an econometric model, and assumes two types of market participants, speculators and non-speculators, that differ by their forecasting model. Speculators employ a correctly specified forecasting model, are relatively short-term oriented, and are subject to momentum and herding effects via an expectation shock; non-speculators utilize a simple forecasting model, have no incentive to be short-term oriented, and are not subject to herding effects. Parameters are calibrated and estimated using the method of simulated moments, and simulation results show that the model is able to replicate foreign exchange market stylized facts better than a model of representative agent rational expectations. Furthermore, the dynamics of the model are shown to derive from both agent heterogeneity and the expectation shock. Keywords: Exchange rate; Adaptive learning; Expectations formation; Heterogeneous expectations; Misspecifications; Expectation shocks (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:49:y:2016:i:c:p:203-223 DOI: 10.1016/j.jmacro.2016.07.006 Access Statistics for this article Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos More articles in Journal of Macroeconomics from Elsevier |
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