EconPapers    
Economics at your fingertips  
 

On the Consistency of Short-run and Long-run Exchange Rate Expectations

Kenneth Froot () and Takatoshi Ito ()

No 2577, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines whether short-term exchange rate expectations move "too much" by comparing them with long-term expectations. We develop a set of nonlinear restrictions linking expectations at different forecast horizons. The restrictions impose consistency, a property weaker than rationality. We use ex- change rate survey data to measure expectations and then test whether consistency holds. The data show that a current, positive exchange rate shock leads agents to expect a higher long-run future spot rate when iterating forward their short-term expectations than when thinking directly about the long run. In this sense short-horizon expectations may overreact to current exchange rate changes.

Date: 1988-05
Note: ITI IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Published as Froot, Kenneth A. and Takatoshi Ito. "On the Consistency of Short-run and Long-run Exchange Rate Expectations." Journal of International Money and Finance, Vol. 8, no. 4, pp. 487-510, (December 1989).

Downloads: (external link)
http://www.nber.org/papers/w2577.pdf (application/pdf)

Related works:
Journal Article: On the consistency of short-run and long-run exchange rate expectations (1989) 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: https://EconPapers.repec.org/RePEc:nbr:nberwo:2577

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w2577

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2021-06-09
Handle: RePEc:nbr:nberwo:2577