Statistical properties of genetic learning in a model of exchange rate

DOI10.1016/S0165-1889(99)00033-0MaRDI QIDQ1978598zbMATH OpenFDO

Authors Jasmina Arifovic, Ramazan Gençay

Publication date 4 June 2000

Published in Journal of Economic Dynamics and Control (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1016/S0165-1889(99)00033-0

zbMATH Keywords

equilibrium dynamicsoverlapping-generations modeltime series analysis

Mathematics Subject Classification ID

Environmental economics (natural resource models, harvesting, pollution, etc.) (91B76) Economic time series analysis (91B84)

Review text

We study statistical properties of the time series of the exchange rate data generated in the environment where agents update their savings and portfolio decisions using the genetic algorithm. The genetic algorithm adaptation takes place within an overlapping-generations model with two currencies and the free-trade, flexible exchange rate system. The theoretical model implies a constant exchange rate under the perfect foresight assumption. Under the genetic algorithm learning, the model's equilibrium dynamics is not constant but exhibits bounded oscillations. The time series analysis of the data indicates that the dynamics of the exchange rate returns is chaotic. Out-of-equilibrium inequality of rates of return on two currencies prompts the genetic algorithm agents to take advantage of the arbitrage opportunities by increasing the amount of the currency with higher rate of return in their portfolios. This profit seeking results in chaotic patterns of the exchange rate series.

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Cites work

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Cited in

(6)

• Modeling exchange rate behavior with a genetic algorithm
• Agent-based computational finance: Suggested readings and early research
• Exchange rate dynamics in a target zone-A heterogeneous expectations approach
• INDIVIDUAL EXPECTATIONS AND AGGREGATE BEHAVIOR IN LEARNING-TO-FORECAST EXPERIMENTS
• A NOISE TRADER MODEL AS A GENERATOR OF APPARENT FINANCIAL POWER LAWS AND LONG MEMORY
• Genetic learning as an explanation of stylized facts of foreign exchange markets

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