Chartists and Fundamentalists in the Currency Market and the Volatility of Exchange Rates: First Results

Mikael Bask

No 594, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: It is shown in this letter that the magnitude of exchange rate overshooting is larger than in Dornbusch (1976) when chartists are introduced into the model. Also, the extent of overshooting depends inversely on the planning horizon. The latter follows from explicitly modelling the empirical observation that, for shorter planning horizons, more weight is placed on technical analysis, while more weight is placed on fundamental analysis for longer planning horizons.

Keywords: Foreign Exchange; Fundamental Analysis; Overshooting; Technical Analysis (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Pages: 7 pages
Date: 2002-10-23
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