Exchange rate dynamics in a target zone-A heterogeneous expectations approach

Journal of Economic Dynamics and Control

Volumn 33, Issue 2, 2009, Pages 329-344

  Bauer, Christian ^a   De Grauwe, Paul ^b   Reitz, Stefan ^c  

^a UNIVERSITY OF WÜRZBURG   (Germany)

^b UNIVERSITY OF LEUVEN   (Belgium)

^c JUSTUS LIEBIG UNIVERSITY   (Germany)

Author keywords

Exchange rate; Heterogeneous agents; Target zones

Indexed keywords

EID: 56949092081     PISSN: 01651889     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.jedc.2008.05.008     Document Type: Article

References (73)

1. Ahrens R., and Reitz S. Heterogeneous expectations in the foreign exchange market-evidence from daily DM/US dollar exchange rates. Journal of Evolutionary Economics 15 (2005) 65-82
2. Allen H., and Taylor M. The use of technical analysis in the foreign exchange market. Journal of International Money and Finance 11 (1992) 304-314
3. Andersen T., Bollerslev T., Diebold F., and Labys P. The distribution of realized exchange rate volatility. Journal of the American Statistical Association 96 (2001) 42-56
4. Arifovic J., and Gencay R. Statistical properties of genetic algorithm learning in macroeconomic models. Journal of Economic Dynamics and Control 24 (2000) 981-1005
5. Bauer C. A better asymmetric model of changing volatility in stock returns: Trend-GARCH. European Journal of Finance 13 1 (2007) 65-87
6. Bauer C., and Herz B. How credible are the exchange rate regimes of the new EU members-empirical evidence from market sentiments. Eastern European Economics 43 (2005) 55-77
7. Beine, M., Lahaye, J., Laurent, S., Neely, C., Palm, F., 2007. Central bank intervention and exchange rate volatility, its continuous and jump components. Working Paper Series 2006-031C, Federal Reserve Bank of St. Louis.
8. Bekaert G., and Gray S. Target zones and exchange rates: an empirical investigation. Journal of International Economics 45 (1998) 1-35
9. Bertola G., and Caballero R. Target zones and realignments. American Economic Review 82 (1992) 520-536
10. Bertola G., and Svensson L. Stochastic devaluation risk and the empirical fit of target-zone models. Review of Economic Studies 60 (1993) 689-712
11. Bjønnes G., and Rime D. Dealer behavior and trading systems in foreign exchange markets. Journal of Financial Economics 75 (2005) 571-605
12. Bollerslev T. Generalized autoregressive conditional heteroscedasticity. Journal of Econometrics 31 (1986) 307-327
13. Brock W., and Hommes C. Heterogeneous beliefs and routes to chaos in a simple asset pricing model. Journal of Economic Dynamics & Control 22 (1998) 1235-1274
14. Cheung Y., and Chinn M. Currency traders and exchange rate dynamics: a survey of the US market. Journal of International Money and Finance 20 (2001) 439-471
15. Corrado, L., Miller, M., Zhang, L., 2007. Monitoring bands and monitoring rules: how currency intervention can change market composition. Research Paper Series No. 91, Tor Vergata University.
16. De Grauwe P., and Grimaldi M. The exchange rate and its fundamentals in a complex world. Review of International Economics 13 (2005) 549-575
17. De Grauwe P., and Grimaldi M. Heterogeneity of agents, transactions costs and the exchange rate. Journal of Economic Dynamics & Control 29 (2005) 691-719
18. De Grauwe P., and Grimaldi M. Exchange rate puzzles: a tale of switching attractor. European Economic Review 50 (2006) 1-33
19. De Grauwe P., Dewachter H., and Embrechts M. Exchange Rate Theory. Chaotic Models of Foreign Exchange Markets. ninth ed. (1993), Blackwell
20. De Long J., Shleifer A., Summers L., and Waldmann R. Noise trader risk in financial markets. Journal of Political Economy 98 (1990) 703-738
21. De Vries C. Fat tails and the history of the guilder. Tinbergen Magazine 4 (2001) 3-6
22. Dieci R., and Westerhoff F. The effectiveness of Keynes-Tobin transaction taxes when heterogeneous agents can trade in different markets: a behavioral finance approach. Journal of Economic Dynamics & Control 30 (2006) 293-322
23. Dixit A. Entry and exit decisions under uncertainty. Journal of Political Economy 97 (1989) 620-638
24. Engle R. Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation. Econometrica 50 (1982) 987-1007
25. Evans M., and Lyons R. Order flow and exchange rate dynamics. Journal of Political Economy 110 (2002) 170-180
26. Farmer D. Market force, ecology and evolution. Industrial and Corporate Change 11 (2002) 895-953
27. Farmer D., and Joshi S. The price dynamics of common trading strategies. Journal of Economic Behavior & Organization 49 (2002) 149-171
28. Faust, J., Rogers, J., Swanson, E., Wright, J., 2002. Identifying the effects of monetary policy shocks on exchange rates using high frequency data. International Finance Discussion Paper No. 739, Board of Governors of the Federal Reserve System.
29. Flood R., and Rose A. Fixing exchange rates: a virtual quest for fundamentals. Journal of Monetary Economics 36 (1995) 3-37
30. Flood R., and Rose A. Understanding exchange rate volatility without the contrivance of macroeconomics. Economic Journal 109 (1999) 660-672
31. Flood R., Rose A., and Mathieson D. An empirical exploration of exchange-rate target-zones. Carnegie-Rochester Conference Series on Public Policy 35 (1991) 7-66
32. Frankel J., and Froot K. Understanding the US dollar in the eighties: the expectations of chartists and fundamentalists. Economic Record 62 (1986) 24-38
33. Garber P., and Svensson L. The operation and collapse of fixed exchange rate regimes. In: Grossman G., and Rogoff K. (Eds). Handbook of International Economics. vol. III (1995), North-Holland (Chapter 36)
34. Glosten L., and Milgrom P. Bid, ask, and transaction prices in a specialist market with heterogeneously informed agents. Journal of Financial Economics 14 (1985) 71-100
35. Goodhart C., and Figliuoli L. Every minute counts in the foreign exchange markets. Journal of International Money and Finance 10 (1991) 23-52
36. He X., and Westerhoff F. Commodity markets, price limiters and speculative price dynamics. Journal of Economic Dynamics & Control 29 (2005) 1577-1596
37. Hommes C. Heterogeneous agent models in economics and finance. In: Tesfatsion L., and Judd K. (Eds). Handbook of Computational Economics. Agent-Based Computational Economics, vol. 2 (2006), Elsevier 1109-1186
38. Iannizzotto M., and Taylor M. The target-zone model, non-linearity and mean reversion: is the honeymoon really over?. Economic Journal 109 (1999) C96-C110
39. Iannizzotto M., and Taylor M. On the mean-reverting properties of target zone exchange rates: a cautionary note. Economic Letters 71 (2001) 117-129
40. Jeanne O., and Rose A. Noise trading and exchange rate regimes. Quarterly Journal of Economics 117 (2002) 537-569
41. Kilian L., and Taylor M. Why is it so difficult to beat the random walk forecast of exchange rates?. Journal of International Economics 60 (2003) 85-107
42. Krugman P. Target zones and exchange rate dynamics. Quarterly Journal of Economics 16 (1991) 669-682
43. Krugman P., and Miller M. Why have a target zone?. Carnegie-Rochester Conference Series on Public Policy 38 (1993) 279-314
44. Kyle A. Continuous auctions and insider trading. Econometrica 53 (1985) 1315-1336
45. LeBaron B. Agent based computational finance. In: Judd K., and Tesfatsion L. (Eds). Handbook of Computational Economics. Agent-Based Computational Economics, vol. 2 (2006), Elsevier
46. Lindberg H., and Soderlind P. Testing the basic target zone model on swedish data 1982-1990. European Economic Review 38 (1994) 1441-1469
47. Lux T. The socio-economic dynamics of speculative markets: interacting agents, chaos, and fat tails of return distributions. Journal of Economic Behavior and Organization 33 (1998) 143-165
48. Lux T., and Marchesi M. Volatility clustering in financial markets: a microsimulation of interacting agents. International Journal of Theoretical and Applied Finance 3 (2000) 675-702
49. Lyons R. A simultaneous trade model of the foreign exchange hot potato. Journal of International Economics 42 (1997) 275-298
50. Lyons R. The Microstructure Approach to Exchange Rates (2001), MIT Press
51. Meese R., and Rogoff K. Empirical exchange-rate models of the seventies: do they fit out of sample. Journal of International Economics 14 (1983) 3-24
52. Menkhoff L. The noise trading approach-questionnaire evidence from foreign exchange. Journal of International Money and Finance 17 (1998) 547-564
53. Menkhoff, L., Taylor, M., 2008. The obstinate passion of foreign exchange professionals: technical analysis. Journal of Economic Literature, 936-972.
54. Miller M., and Weller P. Exchange rate bands with price inertia. Economic Journal 101 (1991) 1380-1399
55. Murphy, J., 1999. Technical Analysis of Financial Markets. New York.
56. Mussa M. Nominal exchange rate regimes and the behaviour of real exchange rates: evidence and implications. Carnegie-Rochester Conference Series on Public Policy 25 (1986) 117-214
57. Obstfeld, M., Rogoff, K., 2000. The six major puzzles in international macroeconomics: is there a common cause? NBER Macroeconomic Annual No. 15.
58. Osler C. Short-term speculators and the puzzling behavior of exchange rates. Journal of International Economics 43 (1998) 37-58
59. Peel D., and Taylor M. Nonlinear adjustment, long-run equilibrium and exchange rate fundamentals. Journal of International Money and Finance 19 (2000) 33-53
60. Peel D., Sarno L., and Taylor M. Nonlinear mean reversion in real exchange rates: toward a solution to the purchasing power parity puzzles. International Economic Review 42 (2001) 1015-1042
61. Reitz S., and Westerhoff F. Nonlinearities and cyclical behavior: the role of chartists and fundamentalists. Studies in Nonlinear Dynamics and Econometrics 7 4 (2003) 3
62. Reitz S., Westerhoff F., and Wieland C. Target zone interventions and coordination of expectations. Journal of Optimisation Theory and Applications 128 (2006) 453-467
63. Rogoff K. The purchasing power parity puzzle. Journal of Economic Literature 34 (1996) 647-668
64. Sager M., and Taylor M. Under the microscope: the structure of the foreign exchange market. International Journal of Finance and Economics 11 (2006) 81-109
65. Sarno L., and Taylor M. The Economics of Exchange Rates (2002), Cambridge University Press
66. Svensson L. An interpretation of recent research on exchange rate target zones. Journal of Economic Perspectives 6 (1992) 119-144
67. Takagi S. Exchange rate expectations, a survey of survey studies. IMF Staff Papers 38 (1991) 156-183
68. Tristani O. Variable probability of realignment in a target zone. Scandinavian Journal of Economics 96 (1994) 1-14
69. Vigfusson R. Switching between chartists and fundamentalists: a Markov regime-switching approach. International Journal of Financial Economics 2 (1997) 291-305
70. Vitale P. Sterilized central bank intervention in the foreign exchange market. Journal of International Economics 49 (1999) 245-267
71. Werner A. Exchange rate target zones, realignments and the interest rate differential: theory and evidence. Journal of International Economics 39 (1995) 353-367
72. Williamson J. Crawling bands or monitoring bands: How to manage exchange rates in a world of capital mobility. International Finance 1 (1998) 59-79
73. Westerhoff F., and Wieland C. Exchange rate dynamics, central bank intervention and chaos control methods. Journal of Economic Behaviour & Organisation 58 (2005) 117-132