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Wealth, Cost, and Misperception: Empirical Estimation of Three Interaction Channels in a Financial-Macroeconomic Agent-Based Model

Author

Listed:
  • Jiri Kukacka

    (Czech Academy of Sciences, Institute of Information Theory and Automation, Czechia & Charles University, Faculty of Social Sciences, Institute of Economic Studies)

  • Erik Zila

    (Czech Academy of Sciences, Institute of Information Theory and Automation, Czechia & Charles University, Faculty of Social Sciences, Institute of Economic Studies)

Abstract

Financial-macroeconomic agent-based models offer a promising avenue for understanding complex economic interactions, but their use is hindered by challenging empirical estimation. Our paper addresses this gap by constructing a stylized integrated model and estimating its core parameters using US data from 1954 to 2022. To tackle econometric obstacles, including mixed data frequencies, we adapt the simulated method of moments. We then focus on three key interaction channels. The stock market influences the real sector through the wealth effect, which boosts current consumption, and the cost effect, which lowers financing costs for firms. Conversely, the real economy impacts the stock market via the price misperception effect, where economic conditions help approximate the fundamental value of stocks. Our results provide strong statistical support for all three channels, offering novel empirical insights into critical dynamics between the two sectors of the economy.

Suggested Citation

  • Jiri Kukacka & Erik Zila, 2024. "Wealth, Cost, and Misperception: Empirical Estimation of Three Interaction Channels in a Financial-Macroeconomic Agent-Based Model," Working Papers IES 2024/22, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised May 2024.
    • Handle: RePEc:fau:wpaper:wp2024_22
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    File URL: https://ies.fsv.cuni.cz/en/wealth-cost-and-misperception-empirical-estimation-three-interaction-channels-financial
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    More about this item

    Keywords

    integrated agent-based model; behavioral finance and macroeconomics; bounded rationality; heuristic switching; simulated method of moments;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy

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