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Exchange Rate Expectations and the Risk Premium: Tests For a Cross- Section of 17 Currencies

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  • Jeffrey Frankel
  • Menzie Chinn

Abstract

Survey data on a broad cross section of 17 currencies are used to determine whether the forward discount moves primarily in response to changes in expectations of depreciation, or in the risk premium. We find that changes in expected depreciation are quantitatively significant. However we also find evidence, in contrast to earlier studies involving only four or five major currencies, that variation in the risk premium constitutes a large part of variation in the forward discount as well.

Suggested Citation

  • Jeffrey Frankel & Menzie Chinn, 1991. "Exchange Rate Expectations and the Risk Premium: Tests For a Cross- Section of 17 Currencies," NBER Working Papers 3806, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3806
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