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Self-similar characteristics of the currency exchange rate in an economy in transition

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  • Scarlat, E.I.
  • Stan, Cristina
  • Cristescu, C.P.

Abstract

In this paper, we present an analysis of the self-similar characteristics of the temporal series describing the daily exchange rate of the Romanian currency unit “Leu” (ROL) with respect to the US Dollar (USD). The relevance of this investigation consists in the exchange rate being a proper indicator for the dynamics of an economy in transition from a command-type structure towards an open market one. The time series is exhibiting self-similar cells of dimensions obeying a definite power law scaling rule that is related to different categories of economic agents. By using a crossing-type analysis based on the Hurst exponent and the frequency spectrum, five categories were detected. A simple model based on active filters with prevailing feedforward loops working close to the unstable regime, each one describing an economic agent under the stress of a hostile economic environment, is proposed for the dynamics of the fragmentation–defragmentation process. The model qualitatively reproduces the self-similarity characteristics of the currency exchange rate of an economy in transition, subjected to deep structural changes. We observe that the “in-phase evolution” of the economic agents causes the statistical self-similarity to resemble a theoretical self-similarity.

Suggested Citation

  • Scarlat, E.I. & Stan, Cristina & Cristescu, C.P., 2007. "Self-similar characteristics of the currency exchange rate in an economy in transition," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 379(1), pages 188-198.
    • Handle: RePEc:eee:phsmap:v:379:y:2007:i:1:p:188-198
    DOI: 10.1016/j.physa.2006.12.040
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    References listed on IDEAS

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    Cited by:

    1. Cristescu, C.P. & Stan, C. & Scarlat, E.I., 2009. "The dynamics of exchange rate time series and the chaos game," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(23), pages 4845-4855.
    2. Benbachir, Saâd & El Alaoui, Marwane, 2011. "A Multifractal Detrended Fluctuation Analysis of the Moroccan Stock Exchange," MPRA Paper 49003, University Library of Munich, Germany.
    3. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2015. "Wave function method to forecast foreign currencies exchange rates at ultra high frequency electronic trading in foreign currencies exchange markets," MPRA Paper 67470, University Library of Munich, Germany.
    4. Cezar Scarlat & Eugen I. Scarlat, 2007. "Theoretical Aspects of the Economic Transition: The Case of Romania," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 5(4), pages 307-331.
    5. Trenca Ioan & Plesoianu Anita & Capusan Razvan, 2012. "Multifractal Structure Of Central And Eastern European Foreign Exchange Markets," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 784-790, July.
    6. Cristescu, Constantin P. & Stan, Cristina & Scarlat, Eugen I. & Minea, Teofil & Cristescu, Cristina M., 2012. "Parameter motivated mutual correlation analysis: Application to the study of currency exchange rates based on intermittency parameter and Hurst exponent," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(8), pages 2623-2635.
    7. Stan, Cristina & Marmureanu, Luminita & Marin, Cristina & Cristescu, Constantin P., 2020. "Investigation of multifractal cross-correlation surfaces of Hurst exponents for some atmospheric pollutants," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 545(C).

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