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

  • Daniela Federici
  • Giancarlo Gandolfo

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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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3420.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3420
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