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The Information in Long-Maturity Forward Rates: Implications for Exchange Rates and the Forward Premium Anomaly / Jacob Boudoukh, Matthew Richardson, Robert Whitelaw.
- Format:
- Book
- Author/Creator:
- Boudoukh, Jacob.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w11840.
- NBER working paper series no. w11840
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Other Title:
- The Information in Long-Maturity Forward Rates
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2005.
- Summary:
- The forward premium anomaly is one of the most robust puzzles in financial economics. We recast the underlying parity relation in terms of cross-country differences between forward interest rates rather than spot interest rates with dramatic results. These forward interest rate differentials have statistically and economically significant forecast power for annual exchange rate movements, both in- and out-of-sample, and the signs and magnitudes of the corresponding coefficients are consistent with economic theory. Forward interest rates also forecast future spot interest rates and future inflation. Thus, we attribute much of the forward premium anomaly to the anomalous behavior of short-term interest rates, not to a breakdown of the link between fundamentals and exchange rates.
- Notes:
- Print version record
- December 2005.
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