The Euro/Dollar Exchange Rate: Chaotic or Non-Chaotic?
University of Cassino - Department of Economics
Accademia dei Lincei; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
April 27, 2011
CESifo Working Paper Series No. 3420
The aim of this paper is to develop a continuous time exchange rate model that allows for heterogeneity of the agents’ beliefs, in order to explore non-linearities and possible chaotic behaviour. The theoretical model contains an intrinsic non-linearity that gives rise to a jerk differential equation, which is in principle capable of generating chaos. The model is econometrically estimated in continuous time with Euro/Dollar data and examined for the possible presence of chaotic motion. Our results indicate that the possibility of chaotic dynamics has to be rejected.
Number of Pages in PDF File: 24
Keywords: exchange rate, chaos, jerk equation, continuous time econometrics
JEL Classification: F310, F370, C490, C610working papers series
Date posted: April 27, 2011
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