Research Discussion Papers, Bank of Finland
Long swings and chaos in the exchange rate in a DSGE model with a Taylor rule
Abstract: A DSGE model with a Taylor rule is augmented with an
evolutionary switching between technical and fundamental analyses in
currency trade, where the fractions of these trading tools are determined
within the model. Then, a shock hits the economy. As a result, chaotic
dynamics and long swings may occur in the exchange rate, which are
appealing features of the model given existing empirical evidence on chaos
and long swings in exchange rate fluctuations.
Keywords: chaotic dynamics; foreign exchange; fundamental analysis; monetary policy; technical analysis; (follow links to similar papers)
JEL-Codes: C65; E32; E44; E52; F31; (follow links to similar papers)
28 pages, November 12, 2007
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