The Role of Speculation in the Forward Exchange Market: Some Consistent Estimates Assuming Rational Expectations

Mark Taylor

Oxford Bulletin of Economics and Statistics, 1987, vol. 49, issue 3, 323-33

Abstract: This paper develops and estimates an equilibrium condition relating to the modern t heory of forward exchange. The author uses high-quality, overlapping, weekly data for dollar-franc and dollar-sterling exchange and intere st rates, and utilizes a generalized method of moments estimator to y ield consistent and efficient estimates under the assumption of ratio nal expectations. The results suggest the dominance of speculation as a determinant of the dollar-sterling thirty-day forward rate, and gi ve more weight to arbitrage in the determination of the dollar-franc thirty-day forward rate. Copyright 1987 by Blackwell Publishing Ltd

Date: 1987
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Persistent link: https://EconPapers.repec.org/RePEc:bla:obuest:v:49:y:1987:i:3:p:323-33

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