Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82489
Authors: 
De Grauwe, Paul
Grimaldi, Marianna
Year of Publication: 
2004
Series/Report no.: 
Sveriges Riksbank Working Paper Series 164
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
JEL: 
F31
F41
G10
Document Type: 
Working Paper

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