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The scapegoat theory of exchange rates: the first tests

Marcel Fratzscher (), Dagfinn Rime (), Lucio Sarno () and Gabriele Zinna ()

Journal of Monetary Economics, 2015, vol. 70, issue C, 1-21

Abstract: The scapegoat theory of exchange rates (Bacchetta and van Wincoop, 2004, 2013) suggests that market participants may attach excessive weight to individual economic fundamentals, which are picked as “scapegoats”to rationalize observed currency fluctuations at times when exchange rates are driven by unobservable shocks. Using novel survey data that directly measure foreign exchange scapegoats for 12 exchange rates, we find empirical evidence that supports the scapegoat theory. The resulting models explain a large fraction of the variation and directional changes in exchange rates in sample, although their out-of-sample forecasting performance is mixed.

Keywords: Scapegoat; Exchange rates; Economic fundamentals; Survey data (search for similar items in EconPapers)
Date: 2015
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Related works:
Working Paper: The scapegoat theory of exchange rates: the first tests (2014) Downloads
Working Paper: The Scapegoat Theory of Exchange Rates: The First Tests (2013) Downloads
Working Paper: The Scapegoat Theory of Exchange Rates: The First Tests (2012) Downloads
Working Paper: The scapegoat theory of exchange rates: the first tests (2012) Downloads
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