Detecting and Measuring Financial cycles in Heterogeneous Agents Models: an Empirical Analysis

This paper proposes a macroeconometric analysis to depict and measure possible nancial cycles that emerge due to the dynamic interaction between heterogeneous market participants. We consider 2-type heterogeneous speculative agents: Trend followers tend to follow the price trend while contrarians go against the wind. As agents' beliefs are unobserved variables, we construct a state-space model where heuristics are considered as unobserved state components and from which the conditions for endogenous cycles can be mathematically derived and empirically tested. Further, we speci cally measure the length of endogenous nancial cycles. The model is estimated using the equity price index for the 196