Short-term and Long-Term Expectations of the Yen/Dollar Exchange Rate: Evidence from Survey Data / Jeffrey A. Frankel, Kenneth A. Froot.

Format:

Book

Author/Creator:

Frankel, Jeffrey A.

Contributor:

National Bureau of Economic Research.

Froot, Kenneth A.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2216.

NBER working paper series no. w2216

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1987.

Summary:

Three surveys of exchange rate expectations allow us to measure directly the expected rates of return on yen versus dollars. Expectations of yen appreciation against the dollar have been (1) consistently large, (2) variable, and (3) greater than the forward premium, implying that investors were willing to accept a lower expected return on dollar assets. At short-term horizons expectations exhibit bandwagon effects, while at longer-term horizons they show the reverse. A 10 percent yen appreciation generates the expectation of a further appreciation of 2.4 percent over the following week, for example, but a depreciation of 3.4 percent over the following year. At any horizon, investors would do better to reduce the absolute magnitude of expected depreciation. The true spot rate process behaves more like a random walk.

Notes:

Print version record

April 1987.