1 Introduction
1.1 The proposed model
2 Retarded functional differential equations -- selected topics
2.1 Initial value problem, general autonomous equation
2.2 Linear autonomous RFDE
2.3 Nonlinear autonomous RFDE
2.4 Centre manifold analysis
3 Analysis of the model
3.1 Existence, uniqueness and boundedness of the solution
3.2
Characteristic equation -- location of the roots
3.3 Centre manifold analysis
3.4 Stability analysis -- Lyapunov's second method
3.5 Conclusions
4 Numerical simulations
4.1 Asymptotically stable trajectories, a<1
4.2 The boundary point a=1
4.3 Locally unstable trajectories, a>1
4.4 Conclusions
5 Real data observations
5.1 Case One -- Assumption of constant `natural' exchange rate
5.2 Case Two -- `Natural' exchange rate estimated by linear regression
5.3 Case Three -- `Natural' exchange rate estimated by MA technique
5.4 Conclusions
6 Conclusions
Appendix
References