Fixes: Of the Forward Discount Puzzle

Robert Flood () and Andrew Rose

No 1090, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Regressions of ex-post changes in floating exchange rates on appropriate interest differentials typically imply that the high interest rate currency tends to appreciate - the `forward discount puzzle'. Using data from the European Monetary System we find that a large part of the forward discount puzzle vanishes for regimes of fixed exchange rates. That is, deviations from uncovered interest parity appear to vary in a way that is dependent upon the exchange rate regime. By using the many EMS realignments we are also able to quantify the `peso problem'.

Keywords: EMS; Exchange Rates; Floating; Interest; Parity; Peso Problem; Uncovered (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Date: 1994-12
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Citations: View citations in EconPapers (14)

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Related works:
Journal Article: Fixes: Of the Forward Discount Puzzle (1996)
Working Paper: Fixes: Of The Forward Discount Puzzle (1994)
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