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. JEL-Code: F310, F370, C490, C610.

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

FEDERICI, Daniela;
2011

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. JEL-Code: F310, F370, C490, C610.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11580/19726
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