CHANGE LANGUAGE | Home > Technical Analysis > Chartists and Fundamentalists in the Currency Market and the Volatility of Exchange Rates: First Results

Chartists and Fundamentalists in the Currency Market and the Volatility of Exchange Rates: First Results

Introduction

Theoretical framework

Expectations formations

Formal analysis of the model

Saddle-Path Stability

Concluding Remarks

References

Appendix

Books: Currency Market

Mikael Bask:

Chartists and Fundamentalists in the Currency Market and the Volatility of Exchange Rates: First Results

Keywords : Currency Market , Chartist Analysis

It is shown in this letter that the magnitude of exchange rate overshooting is larger than in Dornbusch (1976) when chartists are introduced into the model. Also, the extent of overshooting depends inversely on the planning horizon. The latter follows from explicitly modelling the empirical observation that, for shorter planning horizons, more weight is placed on technical analysis, while more weight is placed on fundamental analysis for longer planning horizons.

I am grateful to Karl-Gustav Lofgren for helpful comments. A research grant from the Swedish Foundation for International Cooperation in Research and Higher Education (STINT) is also gratefully acknowledged.

Prof. Mikael Bask

Umeå Economic Studies

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