IDEAS home Printed from https://ideas.repec.org/p/fip/fedgif/292.html
   My bibliography  Save this paper

Short-term and long-term expectations of the yen/dollar exchange rate: evidence from survey data

Author

Listed:
  • Jeffrey A. Frankel
  • Kenneth A. Froot

Abstract

Three surveys of exchange rate expectations allow us to measure directly the expected rates of return on yen versus dollars. Expectations of yen appreciation against the dollar have been (1) consistently large, (2) variable, and (3) greater than the forward premium, implying that investors were willing to accept a lower expected return on dollar assets. At short-term horizons expectations exhibit bandwagon effects, while at longer-term horizons they show the reverse. A 10 percent yen appreciation generates the expectation of a further appreciation of 2.4 percent over the following week, for example, but a depreciation of 3.4 percent over the following year. At any horizon, investors would do better to reduce the absolute magnitude of expected depreciation. The true spot rate process behaves more like a random walk.

Suggested Citation

  • Jeffrey A. Frankel & Kenneth A. Froot, 1986. "Short-term and long-term expectations of the yen/dollar exchange rate: evidence from survey data," International Finance Discussion Papers 292, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:292
    as

    Download full text from publisher

    File URL: http://www.federalreserve.gov/pubs/ifdp/1986/292/default.htm
    Download Restriction: no

    File URL: http://www.federalreserve.gov/pubs/ifdp/1986/292/ifdp292.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hodrick, Robert J. & Srivastava, Sanjay, 1984. "An investigation of risk and return in forward foreign exchange," Journal of International Money and Finance, Elsevier, vol. 3(1), pages 5-29, April.
    2. Richard C. Marston, 1986. "Real Exchange Rates and Productivity Growth in the United States and Japan," NBER Working Papers 1922, National Bureau of Economic Research, Inc.
    3. Ito, Takatoshi, 1988. "Use of (Time-Domain) Vector Autoregressions to Test Uncovered Interest Parity," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 296-305, May.
    4. John F. O. Bilson, 1981. "Profitability and Stability in International Currency Markets," NBER Working Papers 0664, National Bureau of Economic Research, Inc.
    5. Manuel H. Johnson & Bonnie E. Loopesko, 1986. "The yen-dollar relationship: a recent historical perspective," International Finance Discussion Papers 288, Board of Governors of the Federal Reserve System (U.S.).
    6. Paul Krugman, 1986. "Is the Japan Problem Over?," NBER Working Papers 1962, National Bureau of Economic Research, Inc.
    7. Frankel, Jeffrey A., 1982. "In search of the exchange risk premium: A six-currency test assuming mean-variance optimization," Journal of International Money and Finance, Elsevier, vol. 1(1), pages 255-274, January.
    8. Fama, Eugene F., 1984. "Forward and spot exchange rates," Journal of Monetary Economics, Elsevier, vol. 14(3), pages 319-338, November.
    Full references (including those not matched with items on IDEAS)

    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:fip:fedgif:292. 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: (Franz Osorio). General contact details of provider: http://edirc.repec.org/data/frbgvus.html .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.