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The dynamics of exchange rate time series and the chaos game

Author

Listed:
  • Cristescu, C.P.
  • Stan, C.
  • Scarlat, E.I.

Abstract

This work presents a novel method of reconstructing some relevant characteristics of exchange rate time series by the superposition of two components: a mostly deterministic one, the chaos game as expressed by the Yuan/USD exchange rate and a purely stochastic one, Gaussian white noise. We analyzed 20 economic systems with the average Index of Economic Freedom above 50. The considered characteristics (the Lempel–Ziv complexity index, the slimness of the distribution and the Iterated Function Systems clumpiness test) are well reproduced by the reconstruction process. Additional confirmation is obtained by an analysis of the exchange rate of the Romanian national currency as an example of an application of the method to a transition economy, and by an analysis of the time series of the Euro-zone as an example of an application to a multinational system using a shorter time series.

Suggested Citation

  • Cristescu, C.P. & Stan, C. & Scarlat, E.I., 2009. "The dynamics of exchange rate time series and the chaos game," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(23), pages 4845-4855.
    • Handle: RePEc:eee:phsmap:v:388:y:2009:i:23:p:4845-4855
    DOI: 10.1016/j.physa.2009.08.005
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    References listed on IDEAS

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    1. Vasilios Plakandaras & Rangan Gupta & Luis A. Gil-Alana & Mark E. Wohar, 2019. "Are BRICS exchange rates chaotic?," Applied Economics Letters, Taylor & Francis Journals, vol. 26(13), pages 1104-1110, July.
    2. Goodness C. Aye & Rangan Gupta & Chi Keung Marco Lau & Xin Sheng, 2019. "Is there a role for uncertainty in forecasting output growth in OECD countries? Evidence from a time-varying parameter-panel vector autoregressive model," Applied Economics, Taylor & Francis Journals, vol. 51(33), pages 3624-3631, July.
    3. Li, Ranran & Hu, Yucai & Heng, Jiani & Chen, Xueli, 2021. "A novel multiscale forecasting model for crude oil price time series," Technological Forecasting and Social Change, Elsevier, vol. 173(C).
    4. Cristescu, Constantin P. & Stan, Cristina & Scarlat, Eugen I. & Minea, Teofil & Cristescu, Cristina M., 2012. "Parameter motivated mutual correlation analysis: Application to the study of currency exchange rates based on intermittency parameter and Hurst exponent," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(8), pages 2623-2635.

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