Economics at your fingertips  

Switching Between Expectation Processes in the Foreign Exchange Market: A Probabilistic Approach Using Survey Data

Georges Prat () and Remzi Uctum ()

Post-Print from HAL

Abstract: This paper relaxes a fundamental hypothesis commonly accepted in the expectation formation literature: expectations are, unchangingly, either rational or generated by one of the three simple extrapolative, regressive or adaptive processes. Using expectations survey data provided by Consensus Forecasts on six European exchange rates against the US Dollar, we find that the rational expectations hypothesis is rejected at the aggregate level. By implementing a switching regression methodology with stochastic choice of regime, we show that the expectation generating process is given at any time by some combination of the three simple processes. An interpretation of this framework in terms of economically rational expectations is suggested.

Keywords: expectation formation; switching-regime; exchange rates; survey data; cost and advantage analysis (search for similar items in EconPapers)
Date: 2007-09
Note: View the original document on HAL open archive server:
References: Add references at CitEc
Citations: View citations in EconPapers (12) Track citations by RSS feed

Published in Review of International Economics, Wiley, 2007, 15 (4), pp.700-719

Downloads: (external link) (application/pdf)

Related works:
Journal Article: Switching between Expectation Processes in the Foreign Exchange Market: a Probabilistic Approach using Survey Data* (2007) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().

Page updated 2021-07-08
Handle: RePEc:hal:journl:halshs-00081586