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An empirical examination of the Post Keynesian view of forward exchange rates

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  • IMAD A. MOOSA

Abstract

This paper examines the Post Keynesian proposition that the forward rate is determined by covered interest parity and that it is not a predictor of the future spot rate, as suggested by the unbiased efficiency hypothesis. One implication of the failure of unbiased efficiency is that it leads to the failure of real interest parity, implying that the monetary authorities can control interest rates in an open economy. An extensive set of econometric tests is used to demonstrate that the spot-forward relationship is indeed contemporaneous rather than lagged, which corroborates the Post Keynesian view.

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  • Imad A. Moosa, 2004. "An empirical examination of the Post Keynesian view of forward exchange rates," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 26(3), pages 395-418.
    • Handle: RePEc:mes:postke:v:26:y:2004:i:3:p:395-418
    DOI: 10.1080/01603477.2004.11051401
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    Cited by:

    1. 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.
    2. Bhatti, Razzaque H., 2014. "The existence of uncovered interest parity in the CIS countries," Economic Modelling, Elsevier, vol. 40(C), pages 227-241.

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