Bubbles and crashes in a behavioural finance model

Paul De Grauwe and Marianna Grimaldi

We develop a simple model of the exchange rate in which agents optimize their portfolio and use different forecasting rules. They check the profitability of these rules ex post and select the more profitable one. This model produces two kinds of equilibria, a fundamental and a bubble one. In a stochastic environment the model generates a complex dynamics in which bubbles and crashes occur at unpredictable moments. We contrast these behavioural bubbles with rational bubbles.

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Year of publication:	May 2004
Authors:	De Grauwe, Paul ; Grimaldi, Marianna
Publisher:	Stockholm : Sveriges Riksbank
Subject:	exchange rate \| bounded rationality \| heterogeneous agents \| bubbles and crashes \| complex dynamics \| Währungskrise \| Currency crisis \| Spekulationsblase \| Bubbles \| Monetäre Wechselkurstheorie \| Monetary approach to exchange rates \| Portfolio-Management \| Portfolio selection \| Finanzanalyse \| Financial analysis \| Anlageverhalten \| Behavioural finance \| Begrenzte Rationalität \| Bounded rationality \| Theorie \| Theory

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Extent:	1 Online-Ressource (circa 45 Seiten) Illustrationen
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Arbeitspapier ; Working Paper ; Graue Literatur ; Non-commercial literature
Language:	English
Other identifiers:	hdl:10419/82489 [Handle]
Classification:	F31 - Foreign Exchange ; F41 - Open Economy Macroeconomics ; G10 - General Financial Markets. General
Source:	ECONIS - Online Catalogue of the ZBW

Persistent link: https://www.econbiz.de/10011585311