Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/96375
Authors: 
Flaschel, Peter
Hartmann, Florian
Malikane, Chris
Prosano, Christian R.
Year of Publication: 
2013
Series/Report no.: 
Working Paper, Institute of Empirical Economic Research, University of Osnabrück 98
Abstract: 
The paper investigates the emergence of complex market expectations (opinion dynamics) around nominal exchange rate adjustments using a macro-financial model of a small open economy featuring heterogeneous expectation formation (chartists and fundamentalists) and gradual adjustment processes in real and also to a certain degree in financial markets. The model shows among other things the mechanisms through which the first type of agents tends to destabilise the economy. Global stability can be ensured if opinions turn to fundamentalist behaviour far off the steady state. This interaction of expectations and population dynamics is bounding the - due to chartist behavior - potentially explosive real-financial market interactions, but can enforce irregular behaviour within these bounds. The size of output and exchange rate fluctuations can be dampened by adding suitable policy measures to the dynamics of the private sector.
Subjects: 
Nonlinear Exchange Rate Dynamics
Opinion Dynamics
Viability
Persistent and Irregular Fluctuations
Macroeconomic Policy
JEL: 
E12
E24
E31
E52
Document Type: 
Working Paper

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