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The evidence of a mixed expectation generating process in the foreign exchange market

Remzi Uctum () and Georges Prat
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Georges Prat: MDEM - Modélisation de la dynamique économique et monetaire - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique

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Abstract: Using expectations of six main exchange rates provided by Consensus Forecast surveys, the authors show that none of the traditional extrapolative, regressive and adaptive processes is by itself sufficient to account for expectations. However, a weighted average of these three basic processes appears to be successful in explaining the exchange rate expectations for each of the six currencies considered. Moreover, the authors show by using a pooled data sample that the same set of paerameters holds for all currencies, and this suggests that agents generate their expectations using the same mixed process irrespective of the currency. The coefficients of the mixed model, however, are characterized by time instability, and alternative hypotheses are suggested to explain this last result.

Keywords: expectation formation; exchange rate; survey data (search for similar items in EconPapers)
Date: 2000
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00081614
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Published in F.Gardes and G.Prat. Price Expectations in Goods and Financial Markets: New developments in theory and empirical research, Edward Elgar, pp.251-70, 2000

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