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Modelling the Sterling Effective Exchange Rate Using Expectations and Learning



This paper builds on earlier work by Hall (1987) and Currie and Hall (1989) which model the Sterling Effective exchange rate as a structural equation making explicit allowance for the forward-looking nature of the Foreign Exchange markets. This earlier work was based on the assumption of rationality on the part of the agents and the estimation was carried out on the basis of the REH assumption. This paper relaxes the assumption of full information and proposes a learning model of expectations formation. It then develops a stochastic parameter model of expectations formation and discusses how such a model may be estimated by using a Kalman Filter. Copyright 1993 by Blackwell Publishers Ltd and The Victoria University of Manchester

Suggested Citation

  • Hall, S G, 1993. "Modelling the Sterling Effective Exchange Rate Using Expectations and Learning," The Manchester School of Economic & Social Studies, University of Manchester, vol. 61(3), pages 270-286, September.
  • Handle: RePEc:bla:manch2:v:61:y:1993:i:3:p:270-86

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    References listed on IDEAS

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    2. Jackman, Richard, 1985. " Counterinflationary Policy in a Unionised Economy with Nonsynchronised Wage Setting," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 357-378.
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    5. Dertouzos, James N & Pencavel, John H, 1981. "Wage and Employment Determination under Trade Unionism: The International Typographical Union," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1162-1181, December.
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    7. Grossman, Sanford J & Hart, Oliver D, 1981. "Implicit Contracts, Moral Hazard, and Unemployment," American Economic Review, American Economic Association, vol. 71(2), pages 301-307, May.
    8. Calmfors, Lars & Horn, Henrik, 1986. "Employment Policies and Centralized Wage-Setting," Economica, London School of Economics and Political Science, vol. 53(211), pages 281-302, August.
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    Cited by:

    1. Nicholas Sarantis & Chris Stewart, 2000. "The ERM Effect, Conflict and Inflation in the European Union," International Review of Applied Economics, Taylor & Francis Journals, vol. 14(1), pages 25-43.
    2. Sarantis, Nicholas, 2006. "Testing the uncovered interest parity using traded volatility, a time-varying risk premium and heterogeneous expectations," Journal of International Money and Finance, Elsevier, vol. 25(7), pages 1168-1186, November.
    3. Parise, Gerald F., 1994. "Permanent income hypothesis and the cost of adjustment," ISU General Staff Papers 1994010108000012303, Iowa State University, Department of Economics.

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