Modelling the Sterling Effective Exchange Rate Using Expectations and Learning
AbstractThis paper builds on earlier work by Hall (1987) and Currie and Hall (1989) which model the Sterling Effective exchange rate as a structural equation making explicit allowance for the forward-looking nature of the Foreign Exchange markets. This earlier work was based on the assumption of rationality on the part of the agents and the estimation was carried out on the basis of the REH assumption. This paper relaxes the assumption of full information and proposes a learning model of expectations formation. It then develops a stochastic parameter model of expectations formation and discusses how such a model may be estimated by using a Kalman Filter. Copyright 1993 by Blackwell Publishers Ltd and The Victoria University of Manchester
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Bibliographic InfoArticle provided by University of Manchester in its journal The Manchester School of Economic & Social Studies.
Volume (Year): 61 (1993)
Issue (Month): 3 (September)
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Web page: http://www.socialsciences.manchester.ac.uk/disciplines/economics/
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- Sarantis, Nicholas, 2006. "Testing the uncovered interest parity using traded volatility, a time-varying risk premium and heterogeneous expectations," Journal of International Money and Finance, Elsevier, vol. 25(7), pages 1168-1186, November.
- Nicholas Sarantis & Chris Stewart, 2000. "The ERM Effect, Conflict and Inflation in the European Union," International Review of Applied Economics, Taylor & Francis Journals, vol. 14(1), pages 25-43.
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