Exchange Rate Expectations and the Risk Premium: Tests for a Cross Section of 17 Currencies

Jeffrey Frankel and Menzie Chinn

Review of International Economics, 1993, vol. 1, issue 2, 136-44

Abstract: Survey data on a broad cross section of 17 currencies are used to determine whether the forward discount moves primarily in response to changes in expectations of depreciation, or in the risk premium. We find that, in contrast to earlier studies involving developed country exchange rates, variation in the risk premium is a quantitatively significant factor in movements of the forward discount. However, changes in expectations also have a substantial effect. Copyright 1993 by Blackwell Publishing Ltd.

Date: 1993
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Working Paper: Exchange Rate Expectations and the Risk Premium: Tests For a Cross- Section of 17 Currencies (1991)
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