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On the Consistency of Short-run and Long-run Exchange Rate Expectations / Kenneth A. Froot, Takatoshi Ito.
- Format:
- Book
- Author/Creator:
- Froot, Kenneth A.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w2577.
- NBER working paper series no. w2577
- Language:
- English
- Subjects (All):
- Foreign exchange--Mathematical models.
- Foreign exchange.
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 1988.
- Cambridge, Massachusetts : National Bureau of Economic Research, 1988.
- Summary:
- This paper examines whether short-term exchange rate expectations move "too much" by comparing them with long-term expectations. We develop a set of nonlinear restrictions linking expectations at different forecast horizons. The restrictions impose consistency, a property weaker than rationality. We use ex- change rate survey data to measure expectations and then test whether consistency holds. The data show that a current, positive exchange rate shock leads agents to expect a higher long-run future spot rate when iterating forward their short-term expectations than when thinking directly about the long run. In this sense short-horizon expectations may overreact to current exchange rate changes.
- Notes:
- Print version record
- May 1988.
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