Towards Keynesian DSGD (isequilibrium) Modelling: Real-Financial Market Interactions with Heterogeneous Expectations Dynamics

Matthieu Charpe, Peter Flaschel, Florian Hartmann and Roberto Veneziani

No 93-2012, IMK Working Paper from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

Abstract: We consider an alternative modelling approach to the mainstream DSGE paradigm, namely basically a Dynamic Stochastic General Disequilibrium model of continuous adjustment processes on interacting real and financial markets. We introduce heterogeneous capital gain expectations (chartists and fundamentalists) and show that the first type of agents tends to destabilise he economy. Global stability can be ensured if opinions favour fundamentalist behaviour far off the steady state. This interaction of expectations and population dynamics is bounding the real-financial market interactions, but allows for irregular behaviour within these bounds. Stability can be further improved by adding suitable policy measures.

Keywords: Output dynamics; Portfolio Adjustments; Opinion Dynamics; Viability; Policy Measures (search for similar items in EconPapers)
JEL-codes: E12 E24 E31 E52 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2012
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Citations: View citations in EconPapers (8)

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