Interactions between the real economy and the stock market

Frank Westerhoff

No 84, BERG Working Paper Series from Bamberg University, Bamberg Economic Research Group

Abstract: We develop a simple behavioral macro model to study interactions between the real economy and the stock market. The real economy is represented by a Keynesian goods market approach while the setup for the stock market includes heterogeneous speculators. Using a mixture of analytical and numerical tools we find, for instance, that speculators may create endogenous boom-bust dynamics in the stock market which, by spilling over into the real economy, can cause lasting fluctuations in economic activity. However, fluctuations in economic activity may, by shaping the firms' fundamental values, also have an impact on the dynamics of the stock market.

Keywords: goods market; stock market; heterogeneous speculators; stability analysis; complex dynamics (search for similar items in EconPapers)
JEL-codes: D84 E12 G12 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bamber:84

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