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A Test of the Post Keynesian Hypothesis on Expectation Formation in the Foreign Exchange Market

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  • Imad A. Moosa

Abstract

This paper presents structural time series evidence supporting the Post Keynesian hypothesis on the role of expectations in the foreign exchange market. For all of the four exchange rates examined, the hypothesis that exchange rates are driven primarily by expectations is strongly supported. The results, however, do not preclude a role for non-expectational variables. This evidence is taken to be detrimental to the rational expectations hypothesis, which implies that expectations do not affect the objective variable.

Suggested Citation

  • Imad A. Moosa, 2002. "A Test of the Post Keynesian Hypothesis on Expectation Formation in the Foreign Exchange Market," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 24(3), pages 443-457, March.
    • Handle: RePEc:mes:postke:v:24:y:2002:i:3:p:443-457
    DOI: 10.1080/01603477.2002.11490335
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    Cited by:

    1. Imad A. Moosa, 2015. "The random walk versus unbiased efficiency: can we separate the wheat from the chaff?," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 38(2), pages 251-279, October.
    2. John Harvey, 2009. "Currency Market Participants' Mental Model and the Collapse of the Dollar: 2001-2008," Journal of Economic Issues, Taylor & Francis Journals, vol. 43(4), pages 931-949.
    3. Imad A. Moosa, 2004. "What Is Wrong with Market-Based Forecasting of Exchange Rates?," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 3(2), pages 107-121, August.

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