Marc Lavoie is full professor of economics at the University of Ottawa. Gauthier Daigle is a trader and was an MA student at the University of Ottawa. We are very thankful to the two referees of the journal who provided useful suggestions to improve the paper. We are also grateful for the critiques and suggestions of members of the audience at the symposium on post-Keynesian modelling, held at the University of Paris 13 in November 2009.
A BEHAVIOURAL FINANCE MODEL OF EXCHANGE RATE EXPECTATIONS WITHIN A STOCK-FLOW CONSISTENT FRAMEWORK
Article first published online: 15 DEC 2010
© 2010 Blackwell Publishing Ltd
Volume 62, Issue 3, pages 434–458, July 2011
How to Cite
Lavoie, M. and Daigle, G. (2011), A BEHAVIOURAL FINANCE MODEL OF EXCHANGE RATE EXPECTATIONS WITHIN A STOCK-FLOW CONSISTENT FRAMEWORK. Metroeconomica, 62: 434–458. doi: 10.1111/j.1467-999X.2010.04116.x
- Issue published online: 5 JUN 2011
- Article first published online: 15 DEC 2010
- (July 2010; revised October 2010)
The paper combines behavioural finance to a stock-flow consistent model of a two-country economy in the portfolio tradition, with imperfect asset substitutability. ‘Conventionalists’ and ‘chartists’ set their expectations of changes in exchange rates based on some assessed fundamental value and past trends, respectively. We find that exchange rate expectations have a significant effect on exchange rate movements and trade account balances during the traverse and in steady states. A flexible exchange rate regime will continue to provide stabilizing properties, as long as the proportion of chartist actors relative to other agents is not overly large.