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Chartists, Fundamentalists and Exchange Rate Dynamics

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  • Levin, Jay H
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    Abstract

    This paper develops two models in which chartist and fundamentalist asset holders interact to produce exchange rate movements in response to monetary expansion. In the first model, with two groups of asset holders, the dynamic behavior of the system is the same as in the Dornbusch model even though risk-neutral chartist asset holders with destabilizing extrapolative expectations are operating there. However, in the model with a homogeneous group of asset holders maintaining both chartist and fundamentalist expectations, the exchange rate will most likely move to an unstable path, and a speculative bubble that is likely to be temporary will develop. Copyright @ 1997 by John Wiley & Sons, Ltd. All rights reserved.

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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

    Volume (Year): 2 (1997)
    Issue (Month): 4 (October)
    Pages: 281-90

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    Handle: RePEc:ijf:ijfiec:v:2:y:1997:i:4:p:281-90

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    Web page: http://www.interscience.wiley.com/jpages/1076-9307/

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    Cited by:
    1. Repkine, Alexandre, 2008. "Charting Technical Trading Rules and the Lottery of Technical Analysis: Empirical Evidence from Foreign Exchange Market," MPRA Paper 7849, University Library of Munich, Germany.
    2. Mark P. Taylor, 2004. "Is Official Exchange Rate Intervention Effective?," Economica, London School of Economics and Political Science, vol. 71, pages 1-11, 02.

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