Estimation of a microfounded herding model on German survey expectations
Franke, Reiner (2007) Estimation of a microfounded herding model on German survey expectations. Working Paper. Coventry: Warwick Business School, Financial Econometrics Research Centre. Working papers (Warwick Business School. Financial Econometrics Research Centre) (No.07-).
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The paper considers the dynamic adjustments of an average opinion index that can be derived from a microfounded framework where the individual agents switch between two kinds of sentiment with certain transition probabilities. The index can thus represent a general business climate, i.e., expectations about the future course of the economy. This approach is empirically tested with the survey expectations published by the ZEW and ifo institute. The estimated coefficients make economic sense and are highly significant. In particular, besides effects from fundamental data like the output gap in the recent past, one can identify a strong herding mechanism within both panels, such that metaphorically speaking the agents do not just join the crowd but follow each single motion of it. In addition, the transition probabilities of the ZEW agents are found to be influenced by the ifo climate but not the other way round.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HB Economic Theory|
|Divisions:||Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre
Faculty of Social Sciences > Warwick Business School
|Library of Congress Subject Headings (LCSH):||Rational expectations (Economic theory), Business cycles, Business forecasting, Kalman filtering, Estimation theory|
|Series Name:||Working papers (Warwick Business School. Financial Econometrics Research Centre)|
|Publisher:||Warwick Business School, Financial Econometrics Research Centre|
|Place of Publication:||Coventry|
|Official Date:||June 2007|
|Number of Pages:||52|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
Alfarano, S. and Lux, T. (2005), “A noise trader model as a generator of apparent power laws and long memory”, Macroeconomic Dynamics (forthcoming).
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