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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/18795
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| Title: | | Fundamental and non-fundamental equilibria in the foreign exchange market : a behavioural finance framework  |
| Authors: | | De Grauwe, Paul Dieci, Roberto Grimaldi, Marianna |
| Issue Date: | | 2005 |
| Series/Report no.: | | CESifo working papers 1431 |
| Abstract: | | We develop a simple model of the exchange rate in which agents optimize their portfolio and use different forecasting rules. They check the profitability of these rules ex post and select the more profitable one. This model produces two kinds of equilibria, a fundamental and a bubble one. In a stochastic environment the model generates a complex dynamics in which bubbles and crashes occur at unpredictable moments. We contrast these ?behavioural? bubbles with ?rational? bubbles. |
| Subjects: | | exchange rate bounded rationality heterogeneous agents bubbles and crashes complex dynamics basins of attraction |
| JEL: | | G10 F41 F31 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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