Sarah Mignot and Frank Westerhoff publish in "Computational Economics"
Explaining the Stylized Facts of Foreign Exchange Markets with a Simple Agent‑based Version of Paul de Grauwe’s Chaotic Exchange Rate Model
Sarah Mignot und Frank Westerhoff
Abstract: We propose a simple agent-based version of Paul de Grauwe’s chaotic exchange rate model. In particular, we assume that each speculator follows his own technical and fundamental trading rule. Moreover, a speculator’s choice between these two trading philosophies depends on his individual assessment of current market circumstances.
Our agent-based model setup is able to explain a number of important stylized facts of foreign exchange markets, including bubbles and crashes, excess volatility, fattailed return distributions, serially uncorrelated returns and volatility clustering. A stability and bifurcation analysis of its deterministic skeleton provides us with useful insights that foster our understanding of exchange rate dynamics.
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