Using genetic algorithm in dynamic model of speculative attack

Abstract

Evolution of speculative attack models shows certain progress in developing the idea of the role of expectations in the crisis mechanism. Obstfeld (1996) defines expectations as fully exogenous. Morris and Shin (1998) treat the expectations as endogenous (with respect to noise), not devoting too much attention to information structure of the foreign exchange market. Dynamic approach proposed by Angeletos, Hellwig and Pavan (2006) offers more sophisticated assumption about learning process. It tries to reflect time-variant and complex nature of information. However, this model ignores many important details like a Central Bank cost function. Genetic algorithm allows to avoid problems connected with incorporating information and expectations into agent decision-making process to an extent. There are some similarities between the evolution in Nature and currency market performance. In our paper an assumption about rational agent behaviour in the efficient market is criticised and we present our version of the dynamic model of a speculative attack, in which we use a genetic algorithm (GA) to define decision-making process of the currency market agents. The results of our simulation seem to be in line with the theory and intuition. An advantage of our model is that it reflects reality in a quite complex way, i.e. level of noise changes in time (decreasing), there are different states of fundamentals (with “more sensitive” upper part of the scale), the number of inflowing agents can be low or high (due to different globalization phases, different capital flow phases, different uncertainty levels).

Short-term Shocks and Long-term Relationships of Interdependencies Among Central European Capital Markets

“…Last global financial crisis has proved the growing influence of "financisation" of economy on the situation on labour markets (Glazar and Strielkowski, Michał Bernard Pietrzak, Marcin Fałdziński, Adam P. Balcerzak, Tomáš Meluzín, Marek Zinecker Müller-Frączek and Pietrzak, 2011;Pietrzak and Balcerzak, 2016b), macroeconomic fiscal stability (Hadaś-Dyduch, 2015;Miklaszewicz, 2016;Majerová, 2016;Lajtkepová, 2016; and sustainability of whole economies (Pietrzak et al, 2014;Pietrzak and Balcerzak, 2016c;Balcerzak and Pietrzak, 2016b). As a result, identification of international linkages among markets and analysis of their variability over time is the condition for effective management of risk associated to potential negative influence of global capital markets (Arshanapalli et al, 1995;Andersen et al, 1999;Baur, 2003;Pericoli and Sbracia, 2003;Engle, 2009;Billio and Caporin, 2010;Syllignakis and Kouretas, 2011;Baek and Jun, 2011;Karanasos et al, 2014;Reboredo et al, 2015;Heryán and Ziegelbauer, 2016;Gawrońska-Nowak and Grabowski, 2016). It is of great importance both for policy makers at macroeconomic level and managers operating in international environment from microeconomic perspective.…”