Agents' Rationality and the CHF/USD Exchange Rate, Part I
The analysis of monthly exchange rates is carried out using a model of McCallum, which is based on the concept of Rational Expectations. Applying the model to the CHF/USD exchange rate starting a misspecification analysis, the RE component appears to be a weak point of the model. The theory of rational beliefs of M. Kurz generalizes the RE concept introducing special consideration of Data Generating Processes (DGP). We find, however, some evidence speaking against the rational belief approach (with respect to the CHF/USD exchange rate) which is related to regime switchings and the presence of unobserved variables in the data-generating process. It appears that the rationality of economic agents depends on complex cognitive processes not discussed by Kurz, but taken into account in a ''story'' by Paul De Grauwe. This story will be supplemented in Part II of the paper in order to eliminate the RE component and to proceed with the misspecification analysis of McCallum's model.
|Date of creation:|
|Date of revision:|
|Contact details of provider:|| Postal: Schönberggasse 1, CH-8001 Zürich|
Phone: +41-1-634 21 37
Fax: +41-1-634 49 82
Web page: http://www.econ.uzh.ch/
More information through EDIRC
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.:
- McCallum, Bennett T., 1994.
"A reconsideration of the uncovered interest parity relationship,"
Journal of Monetary Economics,
Elsevier, vol. 33(1), pages 105-132, February.
- Bennett T. McCallum, 1992. "A Reconsideration of the Uncovered Interest Parity Relationship," NBER Working Papers 4113, National Bureau of Economic Research, Inc.
- Fama, Eugene F., 1984. "Forward and spot exchange rates," Journal of Monetary Economics, Elsevier, vol. 14(3), pages 319-338, November.
- Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
- Mordecai Kurz, . "Endogenous Uncertainty: A Unified View of Market Volatility," Working Papers 98013, Stanford University, Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:zur:iewwpx:163. 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: (Marita Kieser)
If references are entirely missing, you can add them using this form.