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...

We explore the intertwined dynamics of asset prices and the macroeconomy in a Behavioural model of Credit Cycles (BCC) characterized by a credit friction à la Kiyotaki and Moore and heterogeneous expectations cum heuristic switching à la Brock and Hommes. This behavioural approach allows to...

From the point of view of the average macroeconomist, agent based modelling has an obvious drawback: It makes impossible to think in aggregate terms. The modeller, in fact, can reconstruct aggregate variables only "from the bottom up" by summing the individual quantities. As a consequence the...

In this short paper we cast the Greenwald-Stiglitz financial accelerator framework - which was originally defined in a period by period optimization setting - in an intertemporal context. In this way we overcome one of the most frequent objections to this approach according to which agents are...

Should the central bank act to prevent "excessive" asset price dynamics or should it wait until the boom spontaneously turns into a crash and intervene afterwards to attenuate the fallout on the real economy? The standard "three equation" New Keynesian framework is inadequate to analyse this...