Survey data on a broad cross section of 17 currencies are used to determine whether the forward discount moves primarily in response to changes in expectations of depreciation, or in the risk premium. We find that changes in expected depreciation are quantitatively significant. However we also find evidence, in contrast to earlier studies involving only four or five major currencies, that variation in the risk premium constitutes a large part of variation in the forward discount as well.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
3806.
Length: Date of creation: Aug 1991 Date of revision: Publication status: published as Review of International Economics, 1: no. 2, June 1993, 136-144 Handle: RePEc:nbr:nberwo:3806
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