Are BRICS Exchange Rates Chaotic?

9 Pages Posted: 26 Nov 2018

See all articles by Vasilios Plakandaras

Vasilios Plakandaras

Democritus University of Thrace

Rangan Gupta

University of Pretoria - Department of Economics

Luis A. Gil-Alana

University of Navarra - Department of Economics

Mark E. Wohar

University of Nebraska at Omaha

Date Written: June 12, 2018

Abstract

In this paper, we focus on the stochastic (chaotic) attributes of the US dollar-based exchange rates for Brazil, Russia, India, China and South Africa (BRICS) using a long-run monthly dataset covering 1812M01-2017M12, 1814M01-2017M12, 1822M07-2017M12, 1948M08-2017M12, and 1844M01-2017M12, respectively. For our purpose, we consider the Lyapunov exponents, robust to nonlinear and stochastic systems, in both full — samples and in rolling windows. For comparative purposes, we also evaluate a long-run dataset of a developed currency market, namely British pound over the period of 1791M01-2017M12. Our empirical findings detect chaotic behavior only episodically for all countries before the dissolution of the Bretton Woods system, with the exception of the Russian ruble. Overall, our findings suggest that the establishment of the free floating exchange rate system have altered the path of exchange rates removing chaotic dynamics from the phenomenon, and hence, the need for policymakers to intervene in the currency markets for the most important emerging market bloc, should be carefully examined.

Keywords: Exchange Rate, Chaos, Lyapunov Exponent

JEL Classification: C46, E52

Suggested Citation

Plakandaras, Vasilios and Gupta, Rangan and Gil-Alana, Luis A. and Wohar, Mark E., Are BRICS Exchange Rates Chaotic? (June 12, 2018). Applied Economics Letters, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3275920 or http://dx.doi.org/10.2139/ssrn.3275920

Vasilios Plakandaras (Contact Author)

Democritus University of Thrace ( email )

University Campus
Komotini, 69100
Greece

Rangan Gupta

University of Pretoria - Department of Economics ( email )

Lynnwood Road
Hillcrest
Pretoria, 0002
South Africa

Luis A. Gil-Alana

University of Navarra - Department of Economics ( email )

Campus de Arrosadia
Pamplona, 31006
Spain

Mark E. Wohar

University of Nebraska at Omaha ( email )

Department of Economics
6708 Pine Street MH 332S
Omaha, NE 68182
United States
402-554-3712 (Phone)
402-554-2853 (Fax)

HOME PAGE: http://cba.unomaha.edu/faculty/mwohar/WEB/homepage.html

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