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Information Rigidities and Exchange Rate Expectations

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  • Beckmann, Joscha
  • Reitz, Stefan

Abstract

Sluggish adjustment of expectations to new information is rational in an environment characterized by information costs and signal-to-noise problems. This paper investigates the role of such information rigidities for exchange rate expectations using data from Consensus Economics for eight emerging and industrial economies from 1999 until 2015. Our results provide strong support for this view showing that the inclusion of forecast updates largely accounts for otherwise detected biases in expectation errors. Moreover, we detect little evidence for a systematic effect of fundamentals or uncertainty measures on exchange rate disagreement. Structural shocks do not appear to lead to any systematic increase in disagreement which illustrates the importance of noisy information models.

Suggested Citation

  • Beckmann, Joscha & Reitz, Stefan, 2018. "Information Rigidities and Exchange Rate Expectations," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181628, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc18:181628
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    Cited by:

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    4. Raghav Goyal & Michael K. Adjemian, 2023. "Information rigidities in USDA crop production forecasts," American Journal of Agricultural Economics, John Wiley & Sons, vol. 105(5), pages 1405-1425, October.

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    More about this item

    Keywords

    Exchange rates; Expectations; Disagreement;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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