A Dynamic Exchange Rate Model with Heterogeneous Agents

Michele Gori and Giorgio Ricchiuti

Working Papers - Economics from Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa

Abstract: In this paper, we analyze a heterogeneous agent model in which the fundamental exchange rate is endogenously determined by the real markets. The exchange rate market and the real markets are linked through the balance of payments. We have analytically found that there exists at least a steady state in which the exchange rate is at its fundamental value and incomes of both countries are equal to the autonomous components times the over-simplified multiplier (as in the Income-Expenditure model). That steady state can be unique and always unstable when all agents act as contrarians, while when agents act as fundamentalists is unique but its stability depends on the reactivity of actors of the market. Finally, we show that the (in)stability of the economic system depends on both the reactivity of the markets and that of different type of agents involved.

Keywords: Complex Dynamics; Heterogeneous Agents Models; Financial Markets. (search for similar items in EconPapers)
JEL-codes: C62 D84 E12 E32 G02 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2014
New Economics Papers: this item is included in nep-hme, nep-mac and nep-opm
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Journal Article: A dynamic exchange rate model with heterogeneous agents (2018)
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