Revisiting Paul de Grauwe’s Chaotic Exchange Rate Model : New Analytical Insights and Agent-Based Explorations

Faculty/Professorship: Economic Policy  
Author(s): Mignot, Sarah; Westerhoff, Frank H.  
Publisher Information: Bamberg : Otto-Friedrich-Universität
Year of publication: 2023
Pages: 155–169
Source/Other editions: Open Economies Review, 34 (20239, 1, S. 155–169 . - ISSN: 1573-708X
is version of: 10.1007/s11079-022-09667-5
Year of first publication: 2023
Language(s): English
Licence: Creative Commons - CC BY - Attribution 4.0 International 
URN: urn:nbn:de:bvb:473-irb-588164
We apply recent stability and bifurcation results to provide an analytical characterization of Paul de Grauwe’s chaotic exchange rate model. We prove that the model’s fundamental steady state becomes unstable due to a Neimark-Sacker bifurcation when chartists extrapolate past exchange rate trends too strongly, a phenomenon that gives rise to cyclical exchange rate dynamics. In contrast, fundamentalists’ mean reversion strength only has a stabilizing effect on the model’s dynamics when the exchange rate is out of equilibrium. We also show that agent-based versions of Paul de Grauwe’s exchange rate model may produce endogenous exchange rate dynamics, too.
GND Keywords: Wechselkurstheorie
Keywords: Foreign exchange markets, Exchange rate dynamics, Chartists and fundamentalists, Stability and bifurcation analysis, Agent-based modeling
DDC Classification: 330 Economics  
RVK Classification: QM 331   
Peer Reviewed: Ja
International Distribution: Ja
Type: Article
Release Date: 14. April 2023
Project: Open-Access-Publikationskosten 2022 - 2024

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