seminar: Bubbles in Foreign Exchange Markets: It takes two to tango

speaker: Richard Topol (CNRS)

abstract: In this paper we consider a model in which foreign and domestic traders buy the assets of both countries. The speculators in both countries have rules for forecasting the exchange rate and their demand for the assets of each country is determined by their forecasts. Two rules are used, chartist and fundamentalist. The perceptions of the fundamentals in each country are not necessarily the same. Rules are used with a certain probability depending on the success an agent had with them in the past. The interaction of the demands of the fundamentalist and chartist agents in the two countries determines the equilibrium rate at each point in time. The temporary equilibrium rate is unique under certain assumptions. Since there are traders of both nationalities there is no need, as in other models, for an exogenous supply of foreign exchange. The interaction between the traders produces realistic features of the series of equilibrium exchange rates. There are periods in which the exchange rates track the fundamentals of one of the countries and others in which bubbles appear.

timetable:
Mon 15 Nov, 10:30 - 11:00, Aula Mancini
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