Agents' Rationality and the CHF/USD Exchange Rate, Part II
In Part I the author was concerned with modeling the monthly logarithmic CHF/USD exchange rate, ''s''. He rejected a model proposed by B.T. McCallum. Searching for a more appropriate framework a story by P. De Grauwe was introduced, bringing complex cognitive processes and social practices into the picture. This paper treats again P. De Grauwe's story, supplements it and embedds it into a broader setting showing its links to a subtle concept of agents' rationality. We derive a testable implication of this approach. Although the test result is negative, it will be helpful for the misspecification analysis of B.T. McCallum's model (applied to ''s''), which will finally be presented in Part III of this paper..
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- Tversky, Amos & Kahneman, Daniel, 1986. "Rational Choice and the Framing of Decisions," The Journal of Business, University of Chicago Press, vol. 59(4), pages S251-78, October.
- Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
- Vernon L. Smith, 1994. "Economics in the Laboratory," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 113-131, Winter.
- Arrow, Kenneth J, 1986. "Rationality of Self and Others in an Economic System," The Journal of Business, University of Chicago Press, vol. 59(4), pages S385-99, October.
- 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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