Late-cycle. Output above potential. Inflation pressure building. CB tight, watching for cracks.
Easing cycle still working through the system. Output gap closing from below trend. Inflation soft.
The rate differential is +4.50%, pulling capital into Home. Watch the FX path and carry P&L below; the simulation is running.
CB tight · curve flat / inverted · carry trades crowded · FX overshooting
CB cutting · curve steep · capital pushed out to higher-yielding markets
Each particle is hot money in motion. Flow direction follows the rate differential; density scales with the magnitude. Country rings reflect the current cycle phase.
Home currency per Foreign unit · lower = stronger Home
Rate-diff accrual + FX MTM.
Move a slider or pick a phase. Detector identifies which Dornbusch stage you are in.
Your current scene. CB tight · curve flat / inverted · carry trades crowded · FX overshooting. Foreign is recovery — cb cutting · curve steep · capital pushed out to higher-yielding markets.
Use the phase chips on the Home card or the 'Run full cycle' button. Watch FX overshoot, retrace, and flip as the rate diff crosses zero.
Watch the FX line jump (overshoot) and then decay back toward the new equilibrium. The faster you change the rate, the bigger the visible overshoot.
Move the Home rate above and below Foreign. The particle flow reverses direction and color. This is the entire pull/push mechanic in one moment.
Switch regime to 'Peg + open capital' and set Home rate ≠ Foreign rate. The simulator fires the Mundell–Fleming warning.
The chart is the running P&L of a long-Home / short-Foreign carry position with FX adjustment. Flip the rate sign and watch the line go negative — that is the carry unwind.
The long-run equilibrium FX is a linear function of the rate differential. When the differential changes, the equilibrium jumps. The "actual" FX overshoots that equilibrium and then exponentially decays back toward it. This is a simplified Dornbusch overshooting model.
Particles represent hot money flow. They emit from the lower-rate country and travel toward the higher-rate country. Above parity, money is pulled into Home; below parity, money is pushed out. The color (green vs. rose) makes the direction obvious.
The simulator fires when the active regime is "peg + open capital" and the user tries to set a Home rate different from the Foreign rate. In that combination, the central bank cannot independently set the policy rate without breaking the peg — that is the Mundell–Fleming impossible trinity.
It tracks a fixed "long Home, short Foreign" position. Each tick adds (rdHome − rfForeign) prorated for time, plus a mark-to-market on the Home currency. When Home becomes the lower-yielder, both legs turn against you. That is the textbook carry-unwind risk.
Each country starts in a business-cycle phase. Click a chip to load a typical macro profile (policy rate, expected inflation, output gap). Fine-tune from there using the sliders. The phase chip stays put even if you adjust manually — it represents the scene you are studying.