Short-term and long-term expectations of the yen/dollar exchange rate: evidence from survey data
AbstractThree surveys of exchange rate expectations allow us to measure directly the expected rates of return on yen versus dollars. Expectations of yen appreciation against the dollar have been (1) consistently large, (2) variable, and (3) greater than the forward premium, implying that investors were willing to accept a lower expected return on dollar assets. At short-term horizons expectations exhibit bandwagon effects, while at longer-term horizons they show the reverse. A 10 percent yen appreciation generates the expectation of a further appreciation of 2.4 percent over the following week, for example, but a depreciation of 3.4 percent over the following year. At any horizon, investors would do better to reduce the absolute magnitude of expected depreciation. The true spot rate process behaves more like a random walk.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 292.
Date of creation: 1986
Date of revision:
Other versions of this item:
- Frankel, Jeffrey A. & Froot, Kenneth A., 1987. "Short-term and long-term expectations of the yen/dollar exchange rate: Evidence from survey data," Journal of the Japanese and International Economies, Elsevier, vol. 1(3), pages 249-274, September.
- Jeffrey A. Frankel & Kenneth A. Froot, 1987. "Short-term and Long-Term Expectations of the Yen/Dollar Exchange Rate: Evidence from Survey Data," NBER Working Papers 2216, National Bureau of Economic Research, Inc.
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