Fixes: Of the Forward Discount Puzzle
Regressions of ex post changes in floating exchange rates on appropriate interest differentials typically imply that the high-interest rate currency tends to appreciate, the 'forward discount puzzle.' Using data from the European Monetary System (EMS), the authors find that a large part of the forward discount puzzle vanishes for regimes of fixed exchange rates. That is, deviations from uncovered interest parity appear to vary in a way that is dependent upon the exchange rate regime. By using the many EMS realignments, the authors are also able to quantify the 'peso problem.' Copyright 1996 by MIT Press.
Volume (Year): 78 (1996)
Issue (Month): 4 (November)
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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Froot, Kenneth A & Thaler, Richard H, 1990. "Foreign Exchange," Journal of Economic Perspectives, American Economic Association, vol. 4(3), pages 179-192, Summer.
- Bennett T. McCallum, 1992.
"A Reconsideration of the Uncovered Interest Parity Relationship,"
NBER Working Papers
4113, National Bureau of Economic Research, Inc.
- McCallum, Bennett T., 1994. "A reconsideration of the uncovered interest parity relationship," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 105-132, February.
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