Consumption and Real Exchange Rates in Professional Forecasts

Michael Devereux, Gregor Smith and James Yetman

No 273681, Queen's Economics Department Working Papers from Queen's University - Department of Economics

Abstract: Standard models of international risk sharing with complete asset markets predict a positive association between relative consumption growth and real exchange-rate depreciations across countries. The striking lack of evidence for this link — the consumption/ realexchange- rate anomaly or Backus-Smith puzzle — has prompted research on risk-sharing indicators with incomplete asset markets. That research generally implies that the association holds in forecasts, rather than realizations. Using professional forecasts for 28 countries for 1990-2008 we find no such association, thus deepening the puzzle. Independent evidence on the weak link between forecasts for consumption and real interest rates suggests that the presence of ‘hand-to-mouth’ consumers may help to explain the evidence.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 44
Date: 2009-01
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https://ageconsearch.umn.edu/record/273681/files/qed_wp_1195.pdf (application/pdf)

Related works:
Journal Article: Consumption and real exchange rates in professional forecasts (2012)
Working Paper: Consumption and real exchange rates in professional forecasts (2009)
Working Paper: Consumption and Real Exchange Rates in Professional Forecasts (2009)
Working Paper: Consumption And Real Exchange Rates In Professional Forecasts (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:quedwp:273681

DOI: 10.22004/ag.econ.273681

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