Modeling optimism and pessimism in the foreign exchange market

Arbeitspapier

In this paper we model how the existence of different beliefs about the underlying fundamental value of a currency affects the dynamics of the exchange rate. We find that a divergence of beliefs creates the potential for waves of optimism and pessimism that alternate in an unpredictable way. These waves are disconnected from the underlying (objective) fundamental value. We also find that in such a world there is sensitivity to initial conditions, i.e. small changes in beliefs can fundamentally alter the time path of the exchange rate.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: CESifo Working Paper ; No. 1962

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Computational Techniques; Simulation Modeling ; Asset Pricing; Trading Volume; Bond Interest Rates ; International Financial Markets
• Thema: Wechselkurstheorie ; Anlageverhalten ; Portfolio-Management ; Erwartungstheorie ; Wertpapieranalyse ; Simulation ; Theorie

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): de Grauwe, Paul ; Kaltwasser, Pablo Rovira
• Ereignis: Veröffentlichung
• (wer): Center for Economic Studies and ifo Institute (CESifo)
• (wo): Munich
• (wann): 2007

Weitere Informationen

• Handle: http://hdl.handle.net/10419/26007
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ