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The exchange rate and its fundamentals in a complex world

de Grauwe, Paul and Grimaldi, Marianna (2005) The exchange rate and its fundamentals in a complex world. Review of International Economics, 13 (3). pp. 549-575. ISSN 0965-7576

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Abstract

We develop a nonlinear exchange rate model with heterogeneous agents. Some agents adopt a “fundamentalist” forecasting rule, while others use a “chartist” forecasting rule. We show that the model is capable of explaining the empirical puzzles relating to exchange rate movements. In particular, the model explains the “exchange rate determination” and PPP puzzles, the excess volatility, and fat tails in exchange rate returns.

Item Type: Article
Official URL: http://onlinelibrary.wiley.com/journal/10.1111/%28...
Additional Information: © 2005 Blackwell Publishing
Library of Congress subject classification: H Social Sciences > HG Finance
Journal of Economic Literature Classification System: F - International Economics > F3 - International Finance > F31 - Foreign Exchange
Sets: Departments > European Institute
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 05 Oct 2012 11:07
URL: http://eprints.lse.ac.uk/46583/

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