Exchange Rates and Asset Prices: Heterogeneous Agents at Work
AbstractThis paper merges two branches of the literature. On one hand we study a heterogeneous agents framework to model exchange rates and stock prices. On the other hand we model the relationship between these two series through a DSGE model. Investors choose one of two rules to form their expectations. One rule is based on an open economy model, which reacts to the information from the financial markets. The second rule follows a backward looking approach. We find that when DSGE agents misinterpret the information coming from the financial markets as exogenous productivity shocks they unknowingly amplify the volatility of these markets. The simulated series replicate the stylized facts of real data. We also estimate the DSGE and chartists expectations, and we find that our DSGE agents make output forecasts that are not qualitatively different than the DSGE forecasts from the recent Bayesian literature.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4257.
Date of creation: 2013
Date of revision:
heterogeneous agents; DSGE; exchange rates; stock prices;
Find related papers by JEL classification:
- A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists
- E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
- F30 - International Economics - - International Finance - - - General
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- repec:att:wimass:9621 is not listed on IDEAS
- Robert Kollmann & Nicolas Coeurdacier & Philippe Martin, 2010.
"International portfolios, capital accumulation and foreign assets dynamics,"
Sciences Po publications
info:hdl:2441/c8dmi8nm4pd, Sciences Po.
- Coeurdacier, Nicolas & Kollmann, Robert & Martin, Philippe, 2010. "International portfolios, capital accumulation and foreign assets dynamics," Journal of International Economics, Elsevier, vol. 80(1), pages 100-112, January.
- Coeurdacier, Nicolas & Kollmann, Robert Miguel W. K. & Martin, Philippe J., 2008. "International portfolios, capital accumulation and foreign assets dynamics," Discussion Paper Series 1: Economic Studies 2008,19, Deutsche Bundesbank, Research Centre.
- Nicolas Coeurdacier & Robert Kollmann & Philippe Martin, 2009. "International portfolios, capital accumulation and foreign assets dynamics," Globalization and Monetary Policy Institute Working Paper 27, Federal Reserve Bank of Dallas.
- Coeurdacier, Nicolas & Kollmann, Robert & Martin, Philippe, 2008. "International Portfolios, Capital Accumulation and Foreign Assets Dynamics," CEPR Discussion Papers 6902, C.E.P.R. Discussion Papers.
- Devereux, Michael B & Sutherland, Alan, 2006.
"Solving for Country Portfolios in Open Economy Macro Models,"
CEPR Discussion Papers
5966, C.E.P.R. Discussion Papers.
- Michael B. Devereux & Alan Sutherland, 2007. "Solving for Country Portfolios in Open Economy Macro Models," Working Papers 162007, Hong Kong Institute for Monetary Research.
- Michael B. Devereux & Alan Sutherland, 2007. "Solving for Country Portfolios in Open Economy Macro Models," IMF Working Papers 07/284, International Monetary Fund.
- Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
- Engel, Charles & Hamilton, James D, 1990. "Long Swings in the Dollar: Are They in the Data and Do Markets Know It?," American Economic Review, American Economic Association, vol. 80(4), pages 689-713, September.
- Robert Kollmann, 2001.
"Explaining international comovements of output and asset returns: the role of money and nominal rigidities,"
ULB Institutional Repository
2013/7632, ULB -- Universite Libre de Bruxelles.
- Kollmann, Robert, 2001. "Explaining international comovements of output and asset returns: The role of money and nominal rigidities," Journal of Economic Dynamics and Control, Elsevier, vol. 25(10), pages 1547-1583, October.
- repec:att:wimass:9530 is not listed on IDEAS
- Brock, William A. & Hommes, Cars H., 1998.
"Heterogeneous beliefs and routes to chaos in a simple asset pricing model,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 22(8-9), pages 1235-1274, August.
- William A. Brock & Cars H. Hommes, 1997.
"A Rational Route to Randomness,"
Econometric Society, vol. 65(5), pages 1059-1096, September.
- Sheng-Yung Yang & Shuh-Chyi Doong, 2004. "Price and Volatility Spillovers between Stock Prices and Exchange Rates: Empirical Evidence from the G-7 Countries," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 3(2), pages 139-153, August.
- Bala Ramasamy & Matthew C.H. Yeung, 2005. "The Causality Between Stock Returns And Exchange Rates: Revisited," Australian Economic Papers, Wiley Blackwell, vol. 44(2), pages 162-169, 06.
- Kurz, Mordecai & Piccillo, Giulia & Wu, Howei, 2013. "Modeling diverse expectations in an aggregated New Keynesian Model," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1403-1433.
- Volker Wieland & Maik Wolters, 2011.
"The diversity of forecasts from macroeconomic models of the US economy,"
Springer, vol. 47(2), pages 247-292, June.
- Wieland, Volker & Wolters, Maik H, 2010. "The Diversity of Forecasts from Macroeconomic Models of the U.S. Economy," CEPR Discussion Papers 7870, C.E.P.R. Discussion Papers.
- Wieland, Volker & Wolters, Maik H., 2010. "The diversity of forecasts from macroeconomic models of the U.S. economy," CFS Working Paper Series 2010/08, Center for Financial Studies (CFS).
- Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
- Giorgio Di Giorgio & Salvatore Nistico, 2007. "Monetary Policy and Stock Prices in an Open Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 1947-1985, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra).
If references are entirely missing, you can add them using this form.