More survey data on exchange rate expectations: More currencies, more horizons, more tests

Menzie Chinn and Jeffrey Frankel

International Finance from University Library of Munich, Germany

Abstract: We apply a comprehensive set of survey data, on forecasts for 24 currencies against the dollar, to four topics. (1) We find some predictive power in the survey data (and in the right direction!). As in past tests, the forecasts are nevertheless biased: variability of expected depreciation is excessive, especially at the 3-month horizon. (2) We find some evidence of a time-varying risk premium, especially at the 12-month horizon. But the coefficient on the forward discount is usually significantly greater than 1/2, implying that the risk premium is less variable than is expected depreciation. (3) We examine new data on forecasts at the five-year horizon and obtain, somewhat disappointingly, only weak evidence of regressive expectations towards purchasing power parity. (4) We have no success in an attempt to use the survey data in an equation of exchange rate determination.

JEL-codes: F3 F4 (search for similar items in EconPapers)
Date: 1995-08-28
Note: moresrvy.WP International Finance
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Citations: View citations in EconPapers (4)

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