TY - JOUR
T1 - Heterogeneity of agents and exchange rate dynamics
T2 - Evidence from the EMS
AU - De Jong, Eelke
AU - Verschoor, Willem F C
AU - Zwinkels, Remco C J
PY - 2010/12
Y1 - 2010/12
N2 - We develop and estimate a dynamic heterogeneous agent model for the EMS period. Our empirical results suggest that the existence of heterogeneous interacting agents is indeed a possible explanation for the dynamics of exchange rates during the EMS. We find strong evidence of heterogeneous boundedly rational beliefs, and the fact that agents switch between these beliefs. Moreover, we show that the dynamic heterogeneous agent model outperforms the random walk and the static heterogeneous agents' model in out-of-sample forecasting in the large majority of country-horizon combinations.
AB - We develop and estimate a dynamic heterogeneous agent model for the EMS period. Our empirical results suggest that the existence of heterogeneous interacting agents is indeed a possible explanation for the dynamics of exchange rates during the EMS. We find strong evidence of heterogeneous boundedly rational beliefs, and the fact that agents switch between these beliefs. Moreover, we show that the dynamic heterogeneous agent model outperforms the random walk and the static heterogeneous agents' model in out-of-sample forecasting in the large majority of country-horizon combinations.
KW - Agent-based finance
KW - Heterogeneous expectations
KW - Non-linear modelling
KW - The European Monetary System
UR - http://www.scopus.com/inward/record.url?scp=78149470109&partnerID=8YFLogxK
U2 - 10.1016/j.jimonfin.2010.05.007
DO - 10.1016/j.jimonfin.2010.05.007
M3 - Article
AN - SCOPUS:78149470109
SN - 0261-5606
VL - 29
SP - 1652
EP - 1669
JO - Journal of International Money and Finance
JF - Journal of International Money and Finance
IS - 8
ER -