Modelling the Sterling Effective Exchange Rate Using Expectations and Learning

Stephen Hall

The Manchester School of Economic & Social Studies, 1993, vol. 61, issue 3, 270-86

Abstract: This paper builds on earlier work by Hall (1987) and Currie and Hall (1989) which model the Sterling Effective exchange rate as a structural equation making explicit allowance for the forward-looking nature of the Foreign Exchange markets. This earlier work was based on the assumption of rationality on the part of the agents and the estimation was carried out on the basis of the REH assumption. This paper relaxes the assumption of full information and proposes a learning model of expectations formation. It then develops a stochastic parameter model of expectations formation and discusses how such a model may be estimated by using a Kalman Filter. Copyright 1993 by Blackwell Publishers Ltd and The Victoria University of Manchester

Date: 1993
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Persistent link: https://EconPapers.repec.org/RePEc:bla:manch2:v:61:y:1993:i:3:p:270-86

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