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Binary models of people's behavior during financial instability

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  • D. Piatnytskyi

Abstract

The article deals with the people's behavior during financial instability. Within the theory of behavioral finance, the author provides the main behavioral biases, which are the basis of the subjective factors shaping people's irrational behavior during financial instability and further aggravate the crisis. The article shows the results of logit and probit regressive equation built to estimate the influence on the development of the crisis in Ukraine of the part of households' expectations as to the change of their current material status, people's economic expectations during the year and for the next 5 years. On the example of dynamics, volatility and forecasted values of Consumer Confidence Index for Ukraine, Russia, USA, and Euro zone countries, the article shows that the level of consumer pessimism was the lowest during the crisis, and, after 2015, a gradual increase in optimistic mood and confidence is expected. The article presents an analysis of the dynamics of selected macroindicators, which confirm the negative impact of the Ukrainian people's behavior's on the economic situation in this country and the stability of the banking sector. The author provides the results of a logit modeling to support the validity of the hypothesis that people's irrational behavior aggravated the crisis situation in Ukraine's economy.

Suggested Citation

  • D. Piatnytskyi, 2014. "Binary models of people's behavior during financial instability," Economy and Forecasting, Valeriy Heyets, issue 2, pages 137-148.
  • Handle: RePEc:eip:journl:y:2014:i:2:p:137-148
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    File URL: http://eip.org.ua/docs/EP_14_2_137_uk.pdf
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