IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/1073.html
   My bibliography  Save this paper

Exchange Rates in Search of Fundamental Variables

Author

Listed:
  • De Grauwe, Paul

Abstract

In this paper it is shown that relatively simple models are capable of generating exchange rate movements that, at least in the short run, are largely disconnected from their fundamental values. The essential ingredient of such models is the hypothesis that economic agents use different information sets. It is assumed that there are two classes of agents, fundamentalists and chartists. The former use the information contained in the model and a forecast of future fundamental variables. The latter forecast the future exchange rate based on past exchange rate movements. The interaction of these two classes of agents creates a non-linearity in the model and is responsible for the complex behaviour of the exchange rate.

Suggested Citation

  • De Grauwe, Paul, 1994. "Exchange Rates in Search of Fundamental Variables," CEPR Discussion Papers 1073, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1073
    as

    Download full text from publisher

    File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=1073
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ahrens, Ralf & Reitz, Stefan, 2003. "Heterogeneous Expectations in the Foreign Exchange Market Evidence from the Daily Dollar/DM Exchange Rate," CFS Working Paper Series 2003/11, Center for Financial Studies (CFS).
    2. Ndung'u, N.S., 1999. "Monetary and Exchange Rate Policy in Kenya," Papers 94, African Economic Research Consortium.
    3. Stefan Reitz, 2005. "Central Bank Intervention and Heterogeneous Exchange Rate Expectations: Evidence from the Daily DEM/US-Dollar Exchange Rate," Open Economies Review, Springer, vol. 16(1), pages 33-50, January.
    4. Ralf Ahrens & Stefan Reitz, 2000. "Chartist Prediction in the Foreign Exchange Market. Evidence from the Daily Dollar/DM Exchange Rate," Econometric Society World Congress 2000 Contributed Papers 1683, Econometric Society.
    5. Kisu Simwaka, 2004. "A look at exchange rate and monetary policy in Malawi," Macroeconomics 0407017, University Library of Munich, Germany.
    6. Paul De Grauwe & Isabel Vansteenkiste, 2014. "Exchange Rates and Fundamentals: A Non-Linear Relationship?," World Scientific Book Chapters, in: Exchange Rates and Global Financial Policies, chapter 5, pages 159-187, World Scientific Publishing Co. Pte. Ltd..
    7. repec:dau:papers:123456789/10086 is not listed on IDEAS
    8. John Murray & Simon van Norden & Robert Vigfusson, 1996. "Excess Volatility and Speculative Bubbles in the Canadian Dollar: Real of Imagined?," Technical Reports 76, Bank of Canada.

    More about this item

    Keywords

    Exchange Markets; Exchange Rates;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:1073. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.