Heterogeneity of Agents and Exchange Rate Dynamics

Posted: 7 Mar 2008

See all articles by Remco C. J. Zwinkels

Remco C. J. Zwinkels

Vrije Universiteit Amsterdam; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Eelke de Jong

Radboud University Nijmegen - Department of Economics

Willem F. C. Verschoor

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Date Written: March 2008

Abstract

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 in favor of our model using in- and out-of-sample tests. Moreover, we show that the heterogeneous agent model outperforms the random walk in out-of-sample forecasting in all country/period combinations. Finally, we study the dynamic limit properties of the estimated non-linear system.

Keywords: Heterogeneous expectations, The European Monetary System, Non-linear modelling, Agent-based finance

JEL Classification: F3, G12

Suggested Citation

Zwinkels, Remco C.J. and de Jong, Eelke and Verschoor, Willem F. C., Heterogeneity of Agents and Exchange Rate Dynamics (March 2008). Available at SSRN: https://ssrn.com/abstract=1103040

Remco C.J. Zwinkels

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, NL-1081HV
Netherlands
+31 20 59 85220 (Phone)

HOME PAGE: http://research.vu.nl/en/persons/remco-zwinkels

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Eelke De Jong

Radboud University Nijmegen - Department of Economics ( email )

Thomas van Aquinostraat 3
P.O. Box 9108
Nijmegen, 6500HK
Netherlands

Willem F. C. Verschoor (Contact Author)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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