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Student
Title
Supervisor
Faculty
Educational Programme
Final Grade
Year of Graduation
Vladimir Starostin
Exchange Rate Dynamics in a Behavioral Macroeconomic Model Framework
Applied Economics
(Master’s programme)
2018
This work suggests new comprehensive study of one of the most well-known exchange rate behavioral models developed by (De Grauwe and Grimaldi 2006) which mimics most of observable features of market exchange rate due to its multi-equilibrium properties. This study is realized via proposed analytical approach based on asymptotical analysis of variables dynamics and can be implemented to other models based on adaptively rational equilibrium approach by (Brock and Hommes 1997).

This framework brings a wide set of new results and properties of the model behavior. Certain behavioral parameters that determines main model properties are picked out. They are proved to determine the speed of variables convergence to their equilibrium states and the volatility ratio limit. Certain conditions needed to get economically interpreted results are derived. The framework also provides important criterion determining whether the model converges to a fundamental equilibrium or not. New economic sense is brought to the model via studying equilibrium stability properties. These studies provide an explanation of how this model multi-equilibrium model allows to mimic observable market dynamics. The whole analysis brings a transparency and new understanding of the model behavior. It is also used in revising the results made in (De Grauwe et al. 2005). This revision shows that lots of the results and conclusions in original study are wrong due to the absence of any analytical base. This illustrative result is another proof of the necessity and relevance of such analytical framework.

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