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Modeling short-term effects of trends in the foreign exchange rate through the IFEER concept

Vol. 25, Iss. 6, JUNE 2019

Received: 20 May 2019

Received in revised form: 3 June 2019

Accepted: 17 June 2019

Available online: 28 June 2019

Subject Heading: MONETARY RELATIONS

JEL Classification: E10, F31, F32, F47

Pages: 1410–1419

https://doi.org/10.24891/fc.25.6.1410

Kuz'min A.Yu. Financial University under Government of Russian Federation, Moscow, Russian Federation
a_kuzmin@rambler.ru

https://orcid.org/0000-0002-7053-6615

Subject Mathematical methods are in active use for foreign exchange rate modeling. However, even classical scholars do not give account of short-term trends in foreign exchange rates and respective aspects sufficiently. It is necessary to consider fundamental factors of such trends.
Objectives The study models and investigates trends in the foreign exchange rates in two equal and mutually related economies through the lens of free floating. The trends are based on further development of my own concept for modeling foreign exchange rates through International Flows Equilibrium Exchange Rate (IFEER).
Methods The study relies upon fundamental methods of the economic theory, principles of national bookkeeping, classical methods of mathematical analysis and elements of economic and statistical analysis.
Results I mathematically formalized functional dependencies which, economically, have the natural functionality with respect to a set of key determinants for setting foreign exchange rates. Subsequently, I inferred the ultimate dependency of the foreign exchange rate as part of the a set of factors given there is a function of explosive changes in foreign exchange rates during the crisis period.
Conclusions and Relevance I examined how crisis phenomena influence the model in the foreign currency market in a short run. Based on the economic and mathematical modeling, I made conclusions on the nature of crisis disparity and quantified the impact of short-term effects of trends in the USD/RUB rate.

Keywords: modeling, foreign exchange rate, nonlinear trend, short-term disparity

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