TY - JOUR
T1 - DETECTING AND MEASURING FINANCIAL CYCLES IN HETEROGENEOUS AGENTS MODELS: AN EMPIRICAL ANALYSIS
AU - Gusella, Filippo
PY - 2022
Y1 - 2022
N2 - This paper proposes a macroeconometric analysis to depict and measure possible financial cycles
that emerge due to the dynamic interaction between heterogeneous market participants. We
consider two-type heterogeneous speculative agents: Trend followers tend to follow the price
trend while contrarians go against the wind. As agents' beliefs are unobserved variables, we
construct a state-space model where heuristics are considered as unobserved state components
and from which the conditions for endogenous cycles can be mathematically derived and empirically tested. Further, we speci¯cally measure the length of endogenous ¯nancial cycles. The
model is estimated using the equity price index for the 1960–2020 period for the UK, France,
Germany, Italy, Ireland, and the USA. We ¯nd empirical evidence of endogenous ¯nancial
cycles for all countries, with the highest frequencies in the USA and the UK.
AB - This paper proposes a macroeconometric analysis to depict and measure possible financial cycles
that emerge due to the dynamic interaction between heterogeneous market participants. We
consider two-type heterogeneous speculative agents: Trend followers tend to follow the price
trend while contrarians go against the wind. As agents' beliefs are unobserved variables, we
construct a state-space model where heuristics are considered as unobserved state components
and from which the conditions for endogenous cycles can be mathematically derived and empirically tested. Further, we speci¯cally measure the length of endogenous ¯nancial cycles. The
model is estimated using the equity price index for the 1960–2020 period for the UK, France,
Germany, Italy, Ireland, and the USA. We ¯nd empirical evidence of endogenous ¯nancial
cycles for all countries, with the highest frequencies in the USA and the UK.
KW - Heterogeneous agent models
KW - heterogeneous expectations
KW - endogenous cycles
KW - statespace model
KW - period of cycles.
KW - Heterogeneous agent models
KW - heterogeneous expectations
KW - endogenous cycles
KW - statespace model
KW - period of cycles.
UR - http://hdl.handle.net/10807/293216
U2 - 10.1142/s0219525922400021
DO - 10.1142/s0219525922400021
M3 - Article
SN - 0219-5259
VL - 25
SP - N/A-N/A
JO - Advances in Complex Systems
JF - Advances in Complex Systems
ER -