The Euro-Dollar Exchange Rate: Chaotic or Non-Chaotic? A Continuous Time Model with Heterogeneous Beliefs

Luogo: 
Department of Economics, via Inama, 5 - Trento - Seminar Room, 4th floor

February 29, 2012
5.30 PM

  • Giancarlo Gandolfo, University of Rome

Introduction: K. Vela Velupillai, University of Trento

Abstract:
The aim of this paper is to develop a continuous time exchange rate model that allows for heterogeneity of the agent’s beliefs, in order to explore non-linearities and possible chaotic behaviour. The theoretical model contains an intrinsic nonlinearity 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 possible presence of chaotic motion. Our results indicate that the possibility of chaotic dynamics in our model is rejected.

 

Organizzatore: 
Dipartimento di Economia