Nonlinear expectations in speculative markets – Evidence from the ECB survey of professional forecasters

Chartist and fundamentalist models have proven to be capable of replicating stylized facts on speculative markets. In general, this is achieved by specifying nonlinear interactions of otherwise linear asset price expectations of the respective trader groups. This paper investigates whether or not re...

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Bibliographic Details
Published in:Journal of economic dynamics & control 2012-09, Vol.36 (9), p.1349-1363
Main Authors: Reitz, Stefan, Rülke, Jan-Christoph, Stadtmann, Georg
Format: Article
Language:English
Subjects:
Agent based models
Crude oil prices
Economic forecasts
Economic models
Economic stability
European Central Bank
Expectation
Financial speculation
Forecasting techniques
Non-linear models
Nonlinear expectations
Oil price
Speculation
Studies
Survey data
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Summary:Chartist and fundamentalist models have proven to be capable of replicating stylized facts on speculative markets. In general, this is achieved by specifying nonlinear interactions of otherwise linear asset price expectations of the respective trader groups. This paper investigates whether or not regressive and extrapolative expectations themselves exhibit significant nonlinear dynamics. The empirical results are based on a new data set from the European Central Bank Survey of Professional Forecasters on oil price expectations. In particular, we find that forecasters form destabilizing expectations in the neighborhood of the fundamental value, whereas expectations tend to be stabilizing in the presence of substantial oil price misalignment.
ISSN:0165-1889
1879-1743
DOI:10.1016/j.jedc.2012.02.007