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Forecaster Rationality and Expectation Formation in Foreign Exchange Markets: Do Emerging Countries Differ from Industrialized Economies?

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  • Michael Frenkel
  • Jan-Christoph Rülke
  • Matthias Mauch

Abstract

This paper uses the Consensus Economic Forecast poll to investigate how forecasters in the foreign exchange market form expectations and whether the expectation formation process differs between industrialized and emerging countries. In order to explain the expectation formation of forecasters in countries and country groups, we analyze around 50,000 forecasts for 22 OECD member currencies. We find that differences between the way forecasters in industrialized countries and emerging countries form exchange rate expectations. However, we show that one important difference is due to a difference in forecasting behavior of emerging countries. Controlling for this feature lets the forecasting behavior in emerging countries resemble more the ones found for industrialized countries, but not for all forecast horizons.

Suggested Citation

  • Michael Frenkel & Jan-Christoph Rülke & Matthias Mauch, 2019. "Forecaster Rationality and Expectation Formation in Foreign Exchange Markets: Do Emerging Countries Differ from Industrialized Economies?," International Economic Journal, Taylor & Francis Journals, vol. 33(3), pages 383-407, July.
  • Handle: RePEc:taf:intecj:v:33:y:2019:i:3:p:383-407
    DOI: 10.1080/10168737.2019.1632915
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    Cited by:

    1. Lee A. Smales, 2022. "The influence of policy uncertainty on exchange rate forecasting," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 41(5), pages 997-1016, August.

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