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Foreign Exchange Rate Expectations: Micro Survey Data

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  • Ito, Takatoshi

Abstract

This paper analyzes the panel data of biweekly surveys on the yen/dollar exchange rate expectations of forty-four institutions for two years and contains four major findings. First, market participants are heterogeneous; that is, significant "individual effects" exist in their expectation formation. Second, the individual effects have a characteristic of "wishful expectations": exporters expect yen depreciation and importers expect yen appreciation (relative to others). Third, many violate the rational expectations hypothesis. Fourth, forecasts with long horizons show less yen appreciation than those with short horizons. Cross-equation constraints implied by the consistency of the forecast term structure are strongly rejected in the data. Copyright 1990 by American Economic Association.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 80 (1990)
Issue (Month): 3 (June)
Pages: 434-49

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Handle: RePEc:aea:aecrev:v:80:y:1990:i:3:p:434-49

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  1. Takatoshi Ito, 1984. "Use of (Time-Domain) Vector Autoregressions to Test Uncovered Interest Parity," NBER Working Papers 1493, National Bureau of Economic Research, Inc.
  2. Frankel, Jeffrey A & Froot, Kenneth A, 1987. "Using Survey Data to Test Standard Propositions Regarding Exchange Rate Expectations," American Economic Review, American Economic Association, vol. 77(1), pages 133-53, March.
  3. Ito, Takatoshi & Quah, Danny, 1989. "Hypothesis Testing with Restricted Spectral Density Matrices, with an Application to Uncovered Interest Parity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(1), pages 203-15, February.
  4. Kenneth A. Froot & Takatoshi Ito, 1988. "On the Consistency of Short-run and Long-run Exchange Rate Expectations," NBER Working Papers 2577, National Bureau of Economic Research, Inc.
  5. Dominguez, Kathryn M., 1986. "Are foreign exchange forecasts rational? : New evidence from survey data," Economics Letters, Elsevier, vol. 21(3), pages 277-281.
  6. Sargent, Thomas J., 1979. "A note on maximum likelihood estimation of the rational expectations model of the term structure," Journal of Monetary Economics, Elsevier, vol. 5(1), pages 133-143, January.
  7. Frankel, Jeffrey A. & Froot, Kenneth A., 1987. "Short-term and long-term expectations of the yen/dollar exchange rate: Evidence from survey data," Journal of the Japanese and International Economies, Elsevier, vol. 1(3), pages 249-274, September.
  8. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc.
  9. Jeffrey A. Frankel & Kenneth A. Froot, 1985. "Using Survey Data to Test Some Standard Propositions Regarding Exchange Rate Expectations," NBER Working Papers 1672, National Bureau of Economic Research, Inc.
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