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Taisei Kaizoji ()

No 324, Computing in Economics and Finance 2000 from Society for Computational Economics

Abstract: The collapse of some Asian financial markets in the wake of the floatation of the Thai bath in early July 1997 is the most recent of several episodes in the 1990's rekindling interest in both academic and policy circles in the potential causes and symptoms of financial crises. A key feature of the crisis has been the existence of contagion or Spillover effects. The spillovers during Asian crisis were particularly virulent and exceeded those associated with macroeconomic and trade linkages. Consequently the Asian crisis extended well beyond a few small countries. Including Japan, Latin America and the former Soviet bloc, almost half the world economy was affected. The need for investigation of the financial crises is all the more apparent in light of the severity of the recent Asian crises. [1]In this paper we propose a simulation model of international financial markets which large numbers of interacting agents form. The model is based on the Interacting Agent Hypothesis [2, 3]. We consider an international financial system which consists of some currency blocs. Each currency bloc made up of the markets for many assets (equities, bonds, and domestic currency).We show the characteristic patterns of speculative prices (including speculative bubbles and the burst, and chaos) which, are observed in the recent financial crises, are generated by spillovers and contagion of investor sentiment.[1] IMF, International Capital Markets, 1998. [2] Lux, T., and Marchesi, M., ``Scaling and Criticality in a Stochastic Multi-Agent Model of a Financial Market,'' Nature, 397, 1999, pp. 498-500. [3] Kaizoji, T., ``Complexity of Speculative Price Dynamics", Ph.D. Thesis, Tokyo Institute of Technology, 2000.

Date: 2000-07-05
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More papers in Computing in Economics and Finance 2000 from Society for Computational Economics CEF 2000, Departament d'Economia i Empresa, Universitat Pompeu Fabra, Ramon Trias Fargas, 25,27, 08005, Barcelona, Spain. Contact information at EDIRC.
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