Resource title

Fundamental and non-fundamental equilibria in the foreign exchange market : a behavioural finance framework

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Resource description

We develop a simple model of the exchange rate in which agents optimize their portfolio and use different forecasting rules. They check the profitability of these rules ex post and select the more profitable one. This model produces two kinds of equilibria, a fundamental and a bubble one. In a stochastic environment the model generates a complex dynamics in which bubbles and crashes occur at unpredictable moments. We contrast these ?behavioural? bubbles with ?rational? bubbles.

Resource author

Paul De Grauwe, Roberto Dieci, Marianna Grimaldi

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/18795

Resource license

Adapt according to the presented license agreement and reference the original author.