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Agents' Rationality and the CHF/USD Exchange Rate, Part II

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  • Hermann Garbers

Abstract

In Part I the author was concerned with modeling the monthly logarithmic CHF/USD exchange rate, ''s''. He rejected a model proposed by B.T. McCallum. Searching for a more appropriate framework a story by P. De Grauwe was introduced, bringing complex cognitive processes and social practices into the picture. This paper treats again P. De Grauwe's story, supplements it and embedds it into a broader setting showing its links to a subtle concept of agents' rationality. We derive a testable implication of this approach. Although the test result is negative, it will be helpful for the misspecification analysis of B.T. McCallum's model (applied to ''s''), which will finally be presented in Part III of this paper..

Suggested Citation

  • Hermann Garbers, "undated". "Agents' Rationality and the CHF/USD Exchange Rate, Part II," IEW - Working Papers 169, Institute for Empirical Research in Economics - University of Zurich.
    • Handle: RePEc:zur:iewwpx:169
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    References listed on IDEAS

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    1. De Grauwe, Paul, 2000. "Exchange Rates in Search of Fundamentals: The Case of the Euro-Dollar Rate," International Finance, Wiley Blackwell, vol. 3(3), pages 329-356, November.
    2. Paul De Grauwe, 2014. "Exchange Rates in Search of Fundamentals: The Case of the Euro–Dollar Rate," World Scientific Book Chapters, in: Exchange Rates and Global Financial Policies, chapter 4, pages 121-158, World Scientific Publishing Co. Pte. Ltd..
    3. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    4. Morrison, Gwendolyn C, 1997. "Resolving Differences in Willingness to Pay and Willingness to Accept: Comment," American Economic Review, American Economic Association, vol. 87(1), pages 236-240, March.
    5. McCallum, Bennett T., 1994. "A reconsideration of the uncovered interest parity relationship," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 105-132, February.
    6. Arrow, Kenneth J, 1986. "Rationality of Self and Others in an Economic System," The Journal of Business, University of Chicago Press, vol. 59(4), pages 385-399, October.
    7. Tversky, Amos & Kahneman, Daniel, 1986. "Rational Choice and the Framing of Decisions," The Journal of Business, University of Chicago Press, vol. 59(4), pages 251-278, October.
    8. Vernon L. Smith, 1994. "Economics in the Laboratory," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 113-131, Winter.
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    More about this item

    Keywords

    General Economics and Methodology;

    JEL classification:

    • A1 - General Economics and Teaching - - General Economics
    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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