This paper presents a continuous-time model of exchange rates relying not only on macroeconomic factors but also having a market microstructure component. The driving macroeconomic factor is the interest rate differential, while the market microstructure element is described by the expectations...

Financial markets are typically characterized by high (low) price level and low (high) volatility during boom (bust) periods, suggesting that price and volatility tend to move together with different market conditions/states. By proposing a simple heterogeneous agent model of fundamentalists and...

When agents agree to disagree about the expected growth rate of the aggregate endowment process, we study the asset price dynamics under “Keeping up with the Joneses” (KUJ) meaning that each agent maximizes the expected life-time CRRA utility of his relative consumption to the other agent in...