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Exchange rate dynamics, central bank interventions and chaos control methods

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  • Wieland, Cristian
  • Westerhoff, Frank H.

Abstract

We use a simple chartist-fundamentalist model developed by Day and Huang to explore recent chaos control algorithms as potential candidates for central bank intervention rules. We find that methods such as delayed feedback control, OGY and constant feedback have, in principle, the potential to reduce exchange rate variability and deviations from fundamentals even in the presence of large dynamic noise.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 58 (2005)
Issue (Month): 1 (September)
Pages: 117-132

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Handle: RePEc:eee:jeborg:v:58:y:2005:i:1:p:117-132

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References

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Citations

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Cited by:
  1. Hermsen, Oliver & Witte, Björn-Christopher & Westerhoff, Frank, 2009. "Disclosure requirements, the release of new information and market efficiency: new insights from agent-based models," Economics Discussion Papers 2009-51, Kiel Institute for the World Economy.
  2. He, Xue-Zhong & Westerhoff, Frank H., 2005. "Commodity markets, price limiters and speculative price dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 29(9), pages 1577-1596, September.
  3. Athanasiou, George & Kotsios, Stelios, 2008. "An algorithmic approach to exchange rate stabilization," Economic Modelling, Elsevier, vol. 25(6), pages 1246-1260, November.
  4. Frank H. Westerhoff, 2008. "The Use of Agent-Based Financial Market Models to Test the Effectiveness of Regulatory Policies," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 228(2+3), pages 195-227, June.
  5. Markus Demary, 2011. "Transaction taxes, greed and risk aversion in an agent-based financial market model," Journal of Economic Interaction and Coordination, Springer, vol. 6(1), pages 1-28, May.
  6. Tambakis, D.N., 2008. "Feedback Trading and Intermittent Market Turbulence," Cambridge Working Papers in Economics 0847, Faculty of Economics, University of Cambridge.
  7. Antony Jackson & Daniel Ladley, 2013. "Market Ecologies: The Interaction and Profitability of Technical Trading Strategies," Discussion Papers in Economics 13/02, Department of Economics, University of Leicester.
  8. Stefan Reitz & Frank Westerhoff, 2004. "Target Zone Interventions and Coordination of Expectations," Computing in Economics and Finance 2004 11, Society for Computational Economics.
  9. Menkhoff, Lukas & Rebitzky, Rafael R. & Schröder, Michael, 2009. "Heterogeneity in exchange rate expectations: Evidence on the chartist-fundamentalist approach," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 241-252, May.
  10. Erika Corona & Sabrina Ecca & Michele Marchesi & Alessio Setzu, 2008. "The Interplay Between Two Stock Markets and a Related Foreign Exchange Market: A Simulation Approach," Computational Economics, Society for Computational Economics, vol. 32(1), pages 99-119, September.
  11. Dieci, Roberto & Westerhoff, Frank, 2010. "Heterogeneous speculators, endogenous fluctuations and interacting markets: A model of stock prices and exchange rates," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 743-764, April.

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