Given the unobserved nature of expectations, this paper employs latent variable analysis to examine three financial instability models and assess their out-of-sample forecasting accuracy. We compare a benchmark linear random walk model, which implies exogenous instability phenomena, with a...

In this paper we examine the role of the design of behavioral rules in agent-based macroeconomic modeling. Based on clear theoretical foundations, we develop a general representation of the behavioral rules governing price and quantity decisions of firms and show how rules used in four main...