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N° 2001 - 03 |
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| March |
| Heterogeneous Expectations, Currency Options
and the Euro/Dollar Exchange Rate |
| Bronka Rzepkowski |
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| An exchange rate model with heterogeneous
expectations is developed in which agents are subject to mutual mimetic contagion
in their portfolio decisions. Two alternative sources of heterogeneity are tested
in order to explain the short-term dynamics of the euro/dollar since January 1999.
Information conveyed by over-the-counter currency options allows the time-varying
proportions of each category of agents to be inferred, as well as their respective
exchange rate expectations and standard deviations. The proportion of optimistic
agents in the evolution of the euro and the proportion of confident agents in
their exchange rate anticipations induce portfolio reallocations, which generate
euro/dollar forecasts. |
Abstract |
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| Contagion, probability density function,
heterogeneous expectations |
Keywords |
| E42, E58, F41 |
JEL classification |
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