The Euro/Dollar exchange rate: Chaotic or non-chaotic? A continuous time model with heterogeneous beliefs

Daniela Federici and Giancarlo Gandolfo

Journal of Economic Dynamics and Control, 2012, vol. 36, issue 4, 670-681

Abstract: The aim of this paper is to develop a continuous time exchange rate model that allows for heterogeneity of the agents' beliefs, in order to explore non-linearities and possible chaotic behaviour. The theoretical model contains an intrinsic non-linearity that gives rise to a jerk differential equation, which is in principle capable of generating chaos. The model is econometrically estimated in continuous time with Euro/Dollar data and examined for the possible presence of chaotic motion. Our results indicate that the possibility of chaotic dynamics in our model is rejected.

Keywords: Exchange rate; Chaos; Jerk equation; Continuous time econometrics (search for similar items in EconPapers)
JEL-codes: C49 C61 F31 F37 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:36:y:2012:i:4:p:670-681

DOI: 10.1016/j.jedc.2011.11.008

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