Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/309896 
Year of Publication: 
2022
Citation: 
[Journal:] Open Economies Review [ISSN:] 1573-708X [Volume:] 34 [Issue:] 1 [Publisher:] Springer US [Place:] New York, NY [Year:] 2022 [Pages:] 155-169
Publisher: 
Springer US, New York, NY
Abstract: 
We apply recent stability and bifurcation results to provide an analytical characterization of Paul de Grauwe's chaotic exchange rate model. We prove that the model's fundamental steady state becomes unstable due to a Neimark-Sacker bifurcation when chartists extrapolate past exchange rate trends too strongly, a phenomenon that gives rise to cyclical exchange rate dynamics. In contrast, fundamentalists' mean reversion strength only has a stabilizing effect on the model's dynamics when the exchange rate is out of equilibrium. We also show that agent-based versions of Paul de Grauwe's exchange rate model may produce endogenous exchange rate dynamics, too.
Subjects: 
Foreign exchange markets
Exchange rate dynamics
Chartists and fundamentalists
Stability and bifurcation analysis
Agent-based modeling
JEL: 
D84
F31
G14
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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