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Expectations, disagreement and exchange rate pressure

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  • Beckmann, Joscha
  • Boonman, Tjeerd M.

Abstract

This paper provides a novel look on the relationship between survey-based exchange rate expectations and exchange market pressure. Using monthly data for twelve emerging countries from 2003 until 2020, we show that exchange market pressure often increases disagreement among exchange rate forecasters, especially for currencies with high trading volume. This offers an explanation for increasing volatility in the spot rate through expectations after a surge in exchange market pressure. We also find that forecasters take exchange rate overshooting patterns into account. Periods of exchange rate pressure are succeeded by the belief that the domestic currency appreciates against the US dollar.

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  • Beckmann, Joscha & Boonman, Tjeerd M., 2022. "Expectations, disagreement and exchange rate pressure," Economics Letters, Elsevier, vol. 212(C).
    • Handle: RePEc:eee:ecolet:v:212:y:2022:i:c:s0165176521004535
    DOI: 10.1016/j.econlet.2021.110205
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    References listed on IDEAS

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    11. Nevin Cavusoglu & Andre R. Neveu, 2015. "The Predictive Power of Survey‐Based Exchange Rate Forecasts: Is there a Role for Dispersion?," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 34(5), pages 337-353, August.
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    More about this item

    Keywords

    Expectations; Exchange Market Pressure; Disagreement;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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