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Foreign Exchange Rate Expectations: Micro Survey Data

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  • Ito, Takatoshi

Abstract

This paper analyzes the panel data of biweekly surveys on the yen/dollar exchange rate expectations of forty-four institutions for two years and contains four major findings. First, market participants are heterogeneous; that is, significant "individual effects" exist in their expectation formation. Second, the individual effects have a characteristic of "wishful expectations": exporters expect yen depreciation and importers expect yen appreciation (relative to others). Third, many violate the rational expectations hypothesis. Fourth, forecasts with long horizons show less yen appreciation than those with short horizons. Cross-equation constraints implied by the consistency of the forecast term structure are strongly rejected in the data. Copyright 1990 by American Economic Association.

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  • Ito, Takatoshi, 1990. "Foreign Exchange Rate Expectations: Micro Survey Data," American Economic Review, American Economic Association, vol. 80(3), pages 434-449, June.
    • Handle: RePEc:aea:aecrev:v:80:y:1990:i:3:p:434-49
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    1. Froot, Kenneth A. & Ito, Takatoshi, 1989. "On the consistency of short-run and long-run exchange rate expectations," Journal of International Money and Finance, Elsevier, vol. 8(4), pages 487-510, December.
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    6. Dominguez, Kathryn M., 1986. "Are foreign exchange forecasts rational? : New evidence from survey data," Economics Letters, Elsevier, vol. 21(3), pages 277-281.
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    10. Unknown, 1986. "Letters," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 1(4), pages 1-9.
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