The paper tests the null hypothesis of ex ante purchasing power parity. The empirical evidence obtained is inconsistent with the null for major industrialized countries over the current floating exchange-rate regime. Expected nominal exchange rate changes appear to deviate systematically from expected inflation-rate differentials over the same holding period even though real exchange-rate changes appear to be serially uncorrelated. This supports the presence of time-varying risk premium in foreign exchange markets and real determinants of exchange-rate movements as suggested by equilibrium theories of international asset markets. Copyright 1987 by American Finance Association.
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Article provided by American Finance Association in its journal Journal of Finance.
Volume (Year): 42 (1987) Issue (Month): 1 (March) Pages: 69-79 Download reference. The following formats are available: HTML,
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