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The forward-bias puzzle: Still unsolved

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  • Christian, Müller

Abstract

This article argues that Pippenger's (2011) "Solution to the forward-bias puzzle” must be regarded as an econometric explanation of the famous puzzle, although it does not offer an exhaustive economic answer to it. Some of Pippenger's (2011) findings are reproduced and established in a cointegrated multiple time series model. It is suggested that economists should stop trying to working out the forward-bias puzzle and start looking for fundamentally better models of foreign exchange rate determination. A tentative alternative is provided.

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File URL: http://www.sciencedirect.com/science/article/pii/S1042443111000369
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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

Volume (Year): 21 (2011)
Issue (Month): 4 (October)
Pages: 605-610

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Handle: RePEc:eee:intfin:v:21:y:2011:i:4:p:605-610

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Web page: http://www.elsevier.com/locate/intfin

Related research

Keywords: Puzzles Rational expectations Uncertainty;

References

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  1. Wang, Peijie & Jones, Trefor, 2003. "The impossibility of meaningful efficient market parameters in testing for the spot-forward relationship in foreign exchange markets," Economics Letters, Elsevier, vol. 81(1), pages 81-87, October.
  2. Maurice Obstfeld and Kenneth Rogoff., 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research (CIDER) Working Papers C00-112, University of California at Berkeley.
  3. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  4. Pippenger, John, 2011. "The solution to the forward-bias puzzle," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(2), pages 296-304, April.
  5. Weiss, Andrew A., 1984. "Systematic sampling and temporal aggregation in time series models," Journal of Econometrics, Elsevier, vol. 26(3), pages 271-281, December.
  6. Pippenger, John, 2011. "A Complete Solution To The Forward-Bias Puzzle," University of California at Santa Barbara, Economics Working Paper Series qt5gq9z4j0, Department of Economics, UC Santa Barbara.
  7. Marcellino, Massimiliano, 1999. "Some Consequences of Temporal Aggregation in Empirical Analysis," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 129-36, January.
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Cited by:
  1. Kumar, Satish & Trück, Stefan, 2014. "Unbiasedness and risk premiums in the Indian currency futures market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 13-32.

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