The Nonlinear Real Exchange Rate Growth Model
Keywords:real exchange rate, appreciation, chaos, stability
Chaos theory is used to prove that erratic and chaotic fluctuations can indeed arise in completely deterministic models. Chaos theory reveals structure in aperiodic, dynamic systems. The number of nonlinear business cycle models use chaos theory to explain complex motion of the economy.
The basic aim of this paper is to provide a relatively simple chaotic real exchange rate growth model that is capable of generating stable equilibria, cycles, or chaos.
A key hypothesis of this work is based on the idea that the coefficient plays a crucial role in explaining local stability of the real exchange rate growth , where, s – private saving rate , bm - marginal budget deficit coefficient, b – average budget deficit coefficient, p - productivity and n – net capital outflow rate, β – coefficient which describes relation between budget deficit and net capital outflow.
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