AbstractEconomists often describe nominal exchange rates as forward-looking, so that they reflect discounted, expected, future fundamentals. This study applies a method for identifying the discount rate involved, without knowing or measuring fundamentals. Identification arises from assumptions on the stochastic process followed by fundamentals, combined with nonlinearity arising from expected future regime changes. Two applications yield evidence against the present-value model in the form of discount rates which are negative and statistically significant.
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Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 1248.
Length: 11 pages
Date of creation: Jul 1995
Date of revision:
Publication status: forthcoming in the Journal of International Money and Finance
floating exchange rates; regime switching;
Other versions of this item:
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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