ITEM METADATA RECORD
Title: Animal spirits in the foreign exchange market
Authors: De Grauwe, Paul ×
Rovira Kaltwasser, Pablo #
Issue Date: 2012
Series Title: Journal of Economic Dynamics & Control vol:36 issue:8 pages:1176-1192
Abstract: It is traditionally assumed in finance models that the fundamental value of an asset is known with certainty. In this paper we depart from that assumption. We propose a simple model of the exchange rate in which agents have biased and unbiased beliefs about the fundamental rate. We show that such a model produces waves of optimism and pessimism unrelated to the underlying fundamental value. In addition, the model shows that in a world characterized by the existence of heterogeneous beliefs about the fundamental, exchange rate movements can be remarkably complex even if only fundamentalist traders operate in the market.
ISSN: 0165-1889
Publication status: published
KU Leuven publication type: IT
Appears in Collections:Research Center of International Economics @ Leuven
× corresponding author
# (joint) last author

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