Discussion Paper Details

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Title: A Chaotic Monetary Model of the Exchange Rate

Author(s): Paul De Grauwe and Hans Dewachter

Publication Date: October 1990

Keyword(s): Chaos, Chartism, Fundamental Analysis and Monetary Exchange Model

Programme Area(s): International Macroeconomics

Abstract: We use a monetary (Dornbusch) model of the exchange rate and introduce speculative dynamics, in which fundamentalists and chartists interact. The resulting non-linearities in the model produce `chaotic' behaviour of the exchange rate. We also analyse the effects of money-stock surprises in such a model. Finally, we study the behaviour of the exchange rate when `news' occurs infrequently.

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Bibliographic Reference

De Grauwe, P and Dewachter, H. 1990. 'A Chaotic Monetary Model of the Exchange Rate'. London, Centre for Economic Policy Research.