This paper examines the stability of deterministic steady-states with a one dimensional state-variable and a smooth, recursive updating rule. It is shown that the only possibly stable steady states are those associated with random walk beliefs, provided there is motion on a center manifold,...

Nonlinearly mean-reverting models can explain the high short-term volatility ofthe real exchange rate and the slow speed of adjustment to the equilibrium level. Anonlinearly mean-reverting model is used in this paper to fit to euro-dollar realexchange rate. This model implies that near...