Animal spirits in the foreign exchange market

Kaltwasser, Pablo Rovira

doi:10.1016/j.jedc.2012.03.008

Cited by 52 publications

(72 citation statements)

References 39 publications

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“…Typical examples for channels going in the opposite direction are (1) a misperception effect (Kontonikas and Montagnoli (2006), Westerhoff (2012), DeGrauwe and Kaltwasser (2012), Lengnick and Wohltmann (2013), Naimzada and Pireddu (2013)), (2) a negative dependence on the (real) interest rate (Kontonikas and Montagnoli (2006)), or (3) a mixture of both (Bask (2011)). …”

Section: Microfounding An Extended Is-curvementioning

confidence: 99%

Optimal monetary policy in a new Keynesian model with animal spirits and financial markets

Lengnick

Wohltmann

2016

Journal of Economic Dynamics and Control

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may University of KielHans-Werner Wohltmann * * University of Kiel AbstractThis paper relates to the literature on macro-finance-interaction models. We modify the boundedly rational New Keynesian model of De Grauwe (2010a) using a completely microfounded IS equation, and combine it with the agent-based financial market model of Westerhoff (2008). For this purpose we derive four interactive channels between the financial and real sector where two channels are strictly microfounded. We analyze the impact of the different channels on economic stability and derive optimal (simple) monetary policy rules. We find that coefficients of optimal simple Taylor rules do not significantly change if financial market stabilization becomes part of the central bank's objective function. Additionally, we show that rule-based, backward-looking monetary policy creates huge instabilities if expectations are boundedly rational.JEL classification: E03, E5, G02

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Section: Microfounding An Extended Is-curvementioning

confidence: 99%

Optimal monetary policy in a new Keynesian model with animal spirits and financial markets

Lengnick

Wohltmann

2016

Journal of Economic Dynamics and Control

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“…Another theory for regime-switching uses the "animal spirits" concept of De Grauwe (2010) and De Grauwe and Kaltwasser (2012). Here, boundedly rational and imperfectly informed agents use heuristics to make decisions in the foreign exchange market.…”

Section: The Modelmentioning

confidence: 99%

The Regime-Dependent Evolution of Credibility: A Fresh Look at Hong Kong's Linked Exchange Rate System

Blagov

Funke

2013

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractAn estimated Markov-switching DSGE modelling framework that allows for parameter shifts across regimes is employed to test the hypothesis of regime-dependent credibility of Hong Kong's linked exchange rate system. The model distinguishes two regimes with respect to the time-series properties of the risk premium. Regime-dependent impulse responses to macroeconomic shocks reveal substantial differences in spreads. These findings contribute to efforts at modelling exchange rate regime credibility as a non-linear process with two distinct regimes.

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“…Our paper belongs both to the strand of literature on the interactions between real and financial markets, as well as to the literature on heterogeneous fundamentalists (see, for instance, [25][26][27][28][29][30][31][32][33]). In fact, we here propose a model in which the real economy, described via a Keynesian good market approach, and the stock market, with heterogeneous fundamentalists, interact.…”

Section: Introductionmentioning

confidence: 99%

Real and financial interacting markets: A behavioral macro-model

Naimzada

Pireddu

2015

Chaos, Solitons & Fractals

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a b s t r a c tIn the present paper we propose a model in which the real side of the economy, described via a Keynesian good market approach, interacts with the stock market with heterogeneous speculators, i.e., optimistic and pessimistic fundamentalists, that respectively overestimate and underestimate the reference value due to a belief bias. Agents may switch between optimism and pessimism according to which behavior is more profitable. To the best of our knowledge, this is the first contribution considering both real and financial interacting markets and an evolutionary selection process for which an analytical study is performed. Indeed, employing analytical and numerical tools, we detect the mechanisms and the channels through which the stability of the isolated real and financial sectors leads to instability for the two interacting markets. In order to perform such analysis, we introduce the "interaction degree approach", which allows us to study the complete three-dimensional system by decomposing it into two subsystems, i.e., the isolated financial and real markets, easier to analyze, that are then linked through a parameter describing the interaction degree between the two markets. We derive the stability conditions both for the isolated markets and for the whole system with interacting markets. Next, we show how to apply the interaction degree approach to our model. Among the various scenarios we are led to analyze, the most interesting one is that in which the isolated markets are stable, but their interaction is destabilizing. We choose such setting to give an economic interpretation of the model and to explain the rationale for the emergence of boom and bust cycles. Finally, we add stochastic noises to the optimists and pessimists demands and show how the model is able to reproduce the stylized facts for the real output data in the US.

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Animal spirits in the foreign exchange market

Cited by 52 publications

References 39 publications

Optimal monetary policy in a new Keynesian model with animal spirits and financial markets

Optimal monetary policy in a new Keynesian model with animal spirits and financial markets

The Regime-Dependent Evolution of Credibility: A Fresh Look at Hong Kong's Linked Exchange Rate System

Real and financial interacting markets: A behavioral macro-model

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