The complex interplay between exchange rate and real markets: An agent-based model exploration

We extend the multi-country, multi-sector agent-based model of Dosi et al. (2019); Dosi et al. (2021) by integrating a currency market populated by heterogeneous financial agents—chartists and fundamentalists—who form expectations and trade foreign exchange based on boundedly rational heuristics. This addition generates complex real-financial interactions, wherein the exchange rate acts both as a channel of transmission for endogenous macroeconomic fluctuations and as an independent source of financial shocks. Through extensive simulations, the model reproduces salient empirical regularities of exchange rate behavior—such as excess volatility, fat-tailed return distributions, volatility clustering, and cross-country contagion—and sheds light on the amplification mechanisms linking financial speculation to real economic instability. Finally, we evaluate the effectiveness of central bank interventions under different policy rules and market configurations, highlighting their conditional capacity to stabilize macroeconomic dynamics in the presence of adaptive agent behavior.