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The Euro/Dollar exchange rate: Chaotic or non-chaotic? A continuous time model with heterogeneous beliefs

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Author Info

  • Federici, Daniela
  • Gandolfo, Giancarlo

Abstract

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 in our model is rejected.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 36 (2012)
Issue (Month): 4 ()
Pages: 670-681

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Handle: RePEc:eee:dyncon:v:36:y:2012:i:4:p:670-681

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Exchange rate; Chaos; Jerk equation; Continuous time econometrics;

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References

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