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Grimaldi, Marianna
De Grauwe, Paul
Year of Publication: 
Series/Report no.: 
CESifo Working Paper 1045
We develop a simple model of the foreign exchange market 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 also analyse the empirical relevance of the model.
Document Type: 
Working Paper

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