Interactions between the Real Economy and the Stock Market: A Simple Agent-Based Approach | Zendy

Frank Westerhoff | Zendy

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Interactions between the Real Economy and the Stock Market: A Simple Agent-Based Approach

Author(s) -

Frank Westerhoff

Publication year - 2012

Publication title -

discrete dynamics in nature and society

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.264

H-Index - 39

eISSN - 1607-887X

pISSN - 1026-0226

DOI - 10.1155/2012/504840

Subject(s) - speculation , bust , stock market , boom , economics , real economy , stock (firearms) , monetary economics , economy , macroeconomics , mechanical engineering , paleontology , horse , environmental engineering , biology , engineering

We develop a simple behavioral macromodel to study interactions between the real economy and the stock market. The real economy is represented by a Keynesian-type goods market approach while the setup for the stock market includes heterogeneous speculators. Using a mixture of analytical and numerical tools we find, for instance, that speculators may create endogenous boom-bust dynamics in the stock market which, by spilling over into the real economy, can cause lasting fluctuations in economic activity. However, fluctuations in economic activity may, by shaping the firms' fundamental values, also have an impact on the dynamics of the stock market

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