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Chartists, fundamentalists and exchange rate dynamics
Author(s) -
Levin Jay H.
Publication year - 1997
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/(sici)1099-1158(199710)2:4<281::aid-jfe56>3.0.co;2-m
Subject(s) - asset (computer security) , economics , exchange rate , monetary economics , keynesian economics , financial economics , econometrics , computer security , computer science
This paper develops two models in which chartist and fundamentalist asset holders interact to produce exchange rate movements in response to monetary expansion. In the first model, with two groups of asset holders, the dynamic behavior of the system is the same as in the Dornbusch model even though risk‐neutral chartist asset holders with destabilizing extrapolative expectations are operating there. However, in the model with a homogeneous group of asset holders maintaining both chartist and fundamentalist expectations, the exchange rate will most likely move to an unstable path, and a speculative bubble that is likely to be temporary will develop. © 1997 John Wiley & Sons, Ltd.