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Discrete Dynamics in Nature and Society
Volume 4, Issue 4, Pages 309-317

Chaotic dynamics in a flexible exchange rate system:A study of noise effects

1Faculty of Economics, Chuo University, 742-1, Higashinakano, Hachioji, Tokyo 192-0393, Japan
2Faculty of Economics, Nagoya City University, Mizuho-cho, Mizuho-ku, Nagoya 467-0001, Japan
3School of Education, Wasada University, 1-6-1, Nishiwaseda, Shinjuku-ku, Tokyo 169-0051, Japan

Received 18 August 1999

Copyright © 2000 Hindawi Publishing Corporation. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


In this paper, we investigate by means of analytical method and numerical simulations the properties of three-dimensional business cycle model, in which foreign exchange rate is flexible and a parameter is fluctuated by noise. The model is a discrete time version of Asada (Journal of Economics, 62, 239–269,1995)'s continuous time open economy model without noise. We show (1) noise may suppress the burst of flexible foreign exchange rate when its behavior begins to burst as a bifurcation parameter (adjustment speed of the goods market) is increased, (2) the windows of cycles can be broken by noise, and (3) noise may reveal the hidden structures.