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Consistency and Exchange Rate Expectations

Author

Listed:
  • Swarna D. Dutt

    (West Georgia College, Carrollton, GA 30118, USA)

Abstract

This study examines consistency in the exchange rate expectation formation process. A standard expectation formation model namely exponential forecasting is used to theoretically draw the consistency conditions and then we empirically test the same. Since the literature has expressed reservations about structural expectation processes, a model independent analysis (multivariate cointegration test) is also conducted. Consistency in the expectation formation process is not rejected (rejected) at the short (long) horizon in the structural framework, while it is upheld across the board by the cointegration procedure. Thus while one methodology supports consistency the others support bandwagon expectations.

Suggested Citation

  • Swarna D. Dutt, 1996. "Consistency and Exchange Rate Expectations," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 31(2), pages 205-222, July.
  • Handle: RePEc:dse:indecr:v:31:y:1996:i:2:p:205-222
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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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