An empirical examination of the Post Keynesian view of forward exchange rates

Imad A. Moosa

Journal of Post Keynesian Economics, 2004, vol. 26, issue 3, 395-418

Abstract: This paper examines the Post Keynesian proposition that the forward rate is determined by covered interest parity and that it is not a predictor of the future spot rate, as suggested by the unbiased efficiency hypothesis. One implication of the failure of unbiased efficiency is that it leads to the failure of real interest parity, implying that the monetary authorities can control interest rates in an open economy. An extensive set of econometric tests is used to demonstrate that the spot-forward relationship is indeed contemporaneous rather than lagged, which corroborates the Post Keynesian view.

Date: 2004
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DOI: 10.1080/01603477.2004.11051401

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