Explaining the Stylized Facts of Foreign Exchange Markets with a Simple Agent-based Version of Paul de Grauwe’s Chaotic Exchange Rate Model

Sarah Mignot and Frank Westerhoff
Additional contact information
Sarah Mignot: University of Bamberg

Computational Economics, 2025, vol. 65, issue 2, No 12, 845-876

Abstract: Abstract We propose a simple agent-based version of Paul de Grauwe’s chaotic exchange rate model. In particular, we assume that each speculator follows his own technical and fundamental trading rule. Moreover, a speculator’s choice between these two trading philosophies depends on his individual assessment of current market circumstances. Our agent-based model setup is able to explain a number of important stylized facts of foreign exchange markets, including bubbles and crashes, excess volatility, fat-tailed return distributions, serially uncorrelated returns and volatility clustering. A stability and bifurcation analysis of its deterministic skeleton provides us with useful insights that foster our understanding of exchange rate dynamics.

Keywords: Foreign exchange markets; Exchange rates; Chartists and fundamentalists; Agent-based computational economics; Stability and bifurcation analysis (search for similar items in EconPapers)
JEL-codes: D84 F31 G14 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10614-024-10546-z Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:compec:v:65:y:2025:i:2:d:10.1007_s10614-024-10546-z

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/10614/PS2

DOI: 10.1007/s10614-024-10546-z

Access Statistics for this article

Computational Economics is currently edited by Hans Amman

More articles in Computational Economics from Springer, Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().