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Expectations on the yen/dollar exchange rate - Evidence from the Wall Street Journal forecast poll

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Author Info

  • Ruelke, Jan C.
  • Frenkel, Michael R.
  • Stadtmann, Georg
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    Abstract

    We use the foreign exchange forecasts of the Wall Street Journal poll to analyze forecasters' expectation formation process for the yen against the US dollar for the period 1989-2007. We also contrast the expectation formation process with the actual exchange rate process. We find that most forecasters have contrarian and stabilizing exchange rate expectations. Our results also indicate significant heterogeneity between forecasters. However, forecasters on average underestimate the degree of contrarian and stabilizing behavior.

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    File URL: http://www.sciencedirect.com/science/article/B6WMC-4Y5GXWW-1/2/7f355f2e53c0154a18fc2b461c57b7c1
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

    Volume (Year): 24 (2010)
    Issue (Month): 3 (September)
    Pages: 355-368

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    Handle: RePEc:eee:jjieco:v:24:y:2010:i:3:p:355-368

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    Web page: http://www.elsevier.com/locate/inca/622903

    Related research

    Keywords: Foreign exchange market Forecast bias Random walk;

    References

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    1. Kolb, R. A. & Stekler, H. O., 1996. "Is there a consensus among financial forecasters?," International Journal of Forecasting, Elsevier, vol. 12(4), pages 455-464, December.
    2. Robert Eisenbeis & Daniel Waggoner & Tao Zha, 2002. "Evaluating Wall Street Journal survey forecasters: a multivariate approach," Working Paper 2002-8, Federal Reserve Bank of Atlanta.
    3. Benassy-Quere, Agnes & Larribeau, Sophie & MacDonald, Ronald, 2003. "Models of exchange rate expectations: how much heterogeneity?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(2), pages 113-136, April.
    4. Macdonald, Ronald & Marsh, Ian W., 1996. "Currency forecasters are heterogeneous: confirmation and consequences," Journal of International Money and Finance, Elsevier, vol. 15(5), pages 665-685, October.
    5. Jeffrey A. Frankel & Kenneth A. Froot, 1987. "Using Survey Data to Test Some Standard Propositions Regarding Exchange Rate Expectations," NBER Working Papers 1672, National Bureau of Economic Research, Inc.
    6. Graham Elliott & Takatoshi Ito, 1998. "Heterogeneous Expectations and Tests of Efficiency in the Yen/Dollar Forward Exchange rate Market," Discussion Paper Series a347, Institute of Economic Research, Hitotsubashi University.
    7. Kenneth A. Froot & Takatoshi Ito, 1990. "On the Consistency of Short-run and Long-run Exchange Rate Expectations," NBER Working Papers 2577, National Bureau of Economic Research, Inc.
    8. Stefan Reitz & Ulf Slopek, 2009. "Non-Linear Oil Price Dynamics: A Tale of Heterogeneous Speculators?," German Economic Review, Verein für Socialpolitik, vol. 10, pages 270-283, 08.
    9. Menkhoff, Lukas, 2001. "Short-Term Horizons in Foreign Exchange? Survey Evidence from Dealers and Fund Managers," Kyklos, Wiley Blackwell, vol. 54(1), pages 27-47.
    10. David Laster & Paul Bennett & In Sun Geoum, 1999. "Rational Bias In Macroeconomic Forecasts," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 293-318, February.
    11. Jeffrey A. Frankel & Andrew K. Rose, 1994. "A Survey of Empirical Research on Nominal Exchange Rates," NBER Working Papers 4865, National Bureau of Economic Research, Inc.
    12. Takatoshi Ito, 2005. "Interventions and Japanese Economic Recovery," Hi-Stat Discussion Paper Series d05-100, Institute of Economic Research, Hitotsubashi University.
    13. Cho, Dong W. & Hersch, Philip L., 1998. "Forecaster Characteristics and Forecast Outcomes," Journal of Economics and Business, Elsevier, vol. 50(1), pages 39-48, January.
    14. 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.
    15. Takatoshi Ito, 1990. "Foreign Exchange Rate Expectations: Micro Survey Data," NBER Working Papers 2679, National Bureau of Economic Research, Inc.
    16. Keane, Michael P & Runkle, David E, 1990. "Testing the Rationality of Price Forecasts: New Evidence from Panel Data," American Economic Review, American Economic Association, vol. 80(4), pages 714-35, September.
    17. Greer, Mark, 2003. "Directional accuracy tests of long-term interest rate forecasts," International Journal of Forecasting, Elsevier, vol. 19(2), pages 291-298.
    18. Mark P. Taylor, 1995. "The Economics of Exchange Rates," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 13-47, March.
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    Cited by:
    1. Kei Kawakami, 2013. "Conditiona l Forecast Selection from Many Forecasts: An Application to the Yen/Dollar Exchange Rate," Department of Economics - Working Papers Series 1167, The University of Melbourne.
    2. MacDonald, Ronald & Nagayasu, Jun, 2013. "Currency Forecast Errors at Times of Low Interest Rates: Evidence from Survey Data on the Yen/Dollar Exchange Rate," SIRE Discussion Papers 2013-100, Scottish Institute for Research in Economics (SIRE).

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