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Exchange Rate Expectations and the Current Exchange Rate: A Test of the Monetarist Approach

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  • V S Somanath

    (State University of New York at Binghamton)

Abstract

The monetarist model of the exchange rate includes expectations of the future exchange rate as a determinant of the current exchange rate. This paper investigates whether expectations are a significant determinant of the exchange rate. An expectations process that is consistent with a basic monetarist exchange rate model is considered. Alternative measures of expectations are generated using this process. In the empirical tests, while the standard forward exchange premium measure of expectations is statistically insignificant, some of the alternative measures are observed to be statistically significant.© 1984 JIBS. Journal of International Business Studies (1984) 15, 131–140

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  • V S Somanath, 1984. "Exchange Rate Expectations and the Current Exchange Rate: A Test of the Monetarist Approach," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 15(1), pages 131-140, March.
    • Handle: RePEc:pal:jintbs:v:15:y:1984:i:1:p:131-140
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    Cited by:

    1. Peggy Swanson, 1998. "Spot and forward exchange rates as predictors of future spot rates: trends in exchange market value and the contribution of new information," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 22(2), pages 129-138, June.

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