Detecting and Measuring Financial Cycles in Heterogeneous Agents Models: An Empirical Analysis

Filippo Gusella

Working Papers - Economics from Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa

Abstract: This paper proposes a macroeconometric analysis to depict and measure possible financial cycles that emerge due to the dynamic interaction between heterogeneous market participants. We consider 2-type heterogeneous speculative agents: Trend followers tend to follow the price trend while contrarians go against the wind. As agents' beliefs are unobserved variables, we construct a state-space model where heuristics are considered as unobserved state components and from which the conditions for endogenous cycles can be mathematically derived and empirically tested. Further, we specifically measure the length of endogenous financial cycles. The model is estimated using the equity price index for the 1960–2020 period for the UK, France, Germany, and the USA. We find empirical evidence of endogenous financial cycles for all four countries, with the highest frequencies in the USA and the UK.

Keywords: Heterogeneous Agent Models; Heterogeneous Expectations; Endogenous Cycles; State Space Model; Period of Cycles (search for similar items in EconPapers)
JEL-codes: C13 C32 E32 G10 G12 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2022
New Economics Papers: this item is included in nep-eec, nep-fdg, nep-hme, nep-mac, nep-mon and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: DETECTING AND MEASURING FINANCIAL CYCLES IN HETEROGENEOUS AGENTS MODELS: AN EMPIRICAL ANALYSIS (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:frz:wpaper:wp2022_02.rdf

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