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Exchange Rate Dynamics, Learning and Misperception / Pierre-Olivier Gourinchas, Aaron Tornell.
- Format:
- Book
- Author/Creator:
- Gourinchas, Pierre-Olivier.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w9391.
- NBER working paper series no. w9391
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2002.
- Summary:
- We propose a new explanation for the forward-premium and the delayed-overshooting puzzles. Both puzzles arise from a systematic under-reaction of short-term interest rate forecasts to current innovations. Accordingly, the forward premium is always a biased predictor of future depreciation; the bias can be so severe as to lead to negative coeffcients in the 'Fama' regression; delayed overshooting may or may not occur depending upon the persistence of interest rate innovations and the degree of under-reaction; lastly, for G-7 countries against the U.S., these puzzles can be rationalized for values of the model's parameters that match empirical estimates
- Notes:
- Print version record
- December 2002.
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