Models of Exchange Rate Expectations: Heterogeneous Evidence From Panel Data

Agnès Bénassy-Quéré (), Sophie Larribeau and Ronald MacDonald ()

Working Papers from CEPII research center

Abstract: Central to an understanding of how foreign exchange markets work is the nature of the expectations formation process. Of particular interest are the potentially stabilising or destabilising nature of these expectations. The purpose of this paper is to determine the nature of the expectations processes governing agents' expectations formation and the degree of heterogeneity of such expectations. We use a unique desegregate expectations data base to model the expectations formation of around 40 leading foreign exchange forecasters/ dealers. Panel estimators are used to increase the power of the tests. Four different expectational structures are examined, namely an extrapolative, an adaptive, a regressive and a mixed model.The expectational series used are extracted from the survey data base of Consensus Forecasts of London, and consist of 3 and 12 month expectations of the US dollar bilateral rates of the German mark, Japanese yen and pound sterling, for the period January 1990 to December 1994. Our testing methods center around two panel estimators, namely a fixed effect model and a random coefficient model. The former is seen as a base-line model in which we capture heterogeneities solely in terms of differing intercepts across individuals, whereas in the latter heterogeneity also exhibits itself in terms of differing coefficients and is summarised with a Swamy test.

Keywords: Exchange rate; expectations formation; heterogeneity (search for similar items in EconPapers)
JEL-codes: C33 D84 F31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn and nep-mon
Date: 1999-04
View list of references View citations in EconPapers

Downloads: (external link)
http://www.cepii.fr/anglaisgraph/workpap/pdf/1999/wp99-03.pdf (application/pdf)

Related works:
Working Paper: Models of exchange rate expectations: heterogeneous evidence from Panel data (1999)
Working Paper: Models of Exchange Rate Expectations: Heterogeneous Evidence from Panel Data (1999)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cii:cepidt:1999-03

Access Statistics for this paper

More papers in Working Papers from CEPII research center
Contact information at EDIRC.
Series data maintained by ().