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The Euro/Dollar Exchange Rate: Chaotic or Non-Chaotic?

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  • Daniela Federici
  • Giancarlo Gandolfo

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 has to be rejected.

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Bibliographic Info

Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c016_035.

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Length: 25 pages
Date of creation: Sep 2011
Date of revision:
Handle: RePEc:deg:conpap:c016_035

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Keywords: Exchange rate; chaos; jerk equation; continuous time econometrics;

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References

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Cited by:
  1. Giancarlo Gandolfo, 2012. "The Tobin Tax in a Continuous-time Non-linear Dynamic Model of the Exchange rate," ASSRU Discussion Papers 1221, ASSRU - Algorithmic Social Science Research Unit.

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