IDEAS home Printed from https://ideas.repec.org/a/mcb/jmoncb/v20y1988i4p633-44.html
   My bibliography  Save this article

Forward Premia and Risk Premia in a Simple Model of Exchange Rate Determination

Author

Listed:
  • Boyer, Russell S
  • Adams, F Charles

Abstract

This paper develops the standard rational expectations model of exchange rate determination with risk premia taken as exogenous. The exchange rate is equal to a weighted sum of all future values of the fundamentals and risk premia. Specifically, if risk premia are percei ved to be temporary, then their levels are negatively associated with rates of appreciation. This finding is consistent in sign with the results from the conventional regression equation, but the theory indicates that to obtain unbiased estimates, errors-in-variables techniques must be employed. Plausible estimates for the money market parameters are found from Canadian data. Copyright 1988 by Ohio State University Press.

Suggested Citation

  • Boyer, Russell S & Adams, F Charles, 1988. "Forward Premia and Risk Premia in a Simple Model of Exchange Rate Determination," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(4), pages 633-644, November.
  • Handle: RePEc:mcb:jmoncb:v:20:y:1988:i:4:p:633-44
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0022-2879%28198811%2920%3A4%3C633%3AFPARPI%3E2.0.CO%3B2-W&origin=bc
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Engel, Charles, 1996. "The forward discount anomaly and the risk premium: A survey of recent evidence," Journal of Empirical Finance, Elsevier, vol. 3(2), pages 123-192, June.
    2. Aziz Chouikh & Abdelwahed Trabelsi, 2014. "Modeling Risk Premia in Forward Foreign Exchange Rates as Unobserved Components: The Model Identification Problem," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 5(3), pages 119-135, July.
    3. Alex Luiz Ferreira, 2004. "Leaning Against the Parity," Studies in Economics 0413, School of Economics, University of Kent.
    4. Peter Rowland, 2003. "Uncovered Interest Parity and the USD/COP Echange Rate," Borradores de Economia 227, Banco de la Republica de Colombia.
    5. McCallum, Bennett T., 1994. "A reconsideration of the uncovered interest parity relationship," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 105-132, February.
    6. Isaac, Alan G., 1998. "Risk premia and overshooting," Economics Letters, Elsevier, vol. 61(3), pages 359-364, December.
    7. John Pippenger, 1991. "Forward rates as predictors of future spot rates in small open economies: The case of Kuwait," Open Economies Review, Springer, vol. 2(2), pages 183-201, June.
    8. Min-Yong Shin & Taehwan Yoo, 2006. "Monetary Policy Rules and the Forward Discount Bias," Korean Economic Review, Korean Economic Association, vol. 22, pages 299-317.

    More about this item

    Lists

    This item is featured on the following reading lists or Wikipedia pages:
    1. Canadian Macro Study Group

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mcb:jmoncb:v:20:y:1988:i:4:p:633-44. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.