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Heterogeneous Beliefs in a Sticky-Price Foreign Exchange Model

It is demonstrated in this paper that the exchange rate "overshoots the overshooting equilibrium" when chartists are introduced into a sticky-price monetary model due originally to Dornbusch (1976). Chartists are introduced since questionnaire surveys reveal that currency trade to a large extent is based on technical trading, where moving averages is the most commonly used technique.

Prof. Mikael Bask and Carina Selander.