Random walk expectations and the forward discount puzzle:
Two well-known, but seemingly contradictory, features of exchange rates are that they are close to a random walk while at the same time exchange rate changes are predictable by interest rate differentials. In this paper we investigate whether these two features of the data may in fact be related. In...
Gespeichert in:
| Hauptverfasser: | , |
|---|---|
| Format: | Buch |
| Sprache: | English |
| Veröffentlicht: |
Cambridge, Mass.
National Bureau of Economic Research
2007
|
| Schriftenreihe: | Working paper series / National Bureau of Economic Research
13205 |
| Online-Zugang: | Volltext |
| Zusammenfassung: | Two well-known, but seemingly contradictory, features of exchange rates are that they are close to a random walk while at the same time exchange rate changes are predictable by interest rate differentials. In this paper we investigate whether these two features of the data may in fact be related. In particular, we ask whether the predictability of exchange rates by interest differentials naturally results when participants in the FX market adopt random walk expectations. We find that random walk expectations can explain the forward discount puzzle, but only if FX portfolio positions are revised infrequently. In contrast, with frequent portfolio adjustment and random walk expectations, we find that high interest rate currencies depreciate much more than what UIP would predict. |
| Beschreibung: | Literaturverz. S. 9 |
| Beschreibung: | 13, [1] S. graph. Darst. 22 cm |
Internformat
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| 490 | 1 | |a Working paper series / National Bureau of Economic Research |v 13205 | |
| 500 | |a Literaturverz. S. 9 | ||
| 520 | 8 | |a Two well-known, but seemingly contradictory, features of exchange rates are that they are close to a random walk while at the same time exchange rate changes are predictable by interest rate differentials. In this paper we investigate whether these two features of the data may in fact be related. In particular, we ask whether the predictability of exchange rates by interest differentials naturally results when participants in the FX market adopt random walk expectations. We find that random walk expectations can explain the forward discount puzzle, but only if FX portfolio positions are revised infrequently. In contrast, with frequent portfolio adjustment and random walk expectations, we find that high interest rate currencies depreciate much more than what UIP would predict. | |
| 700 | 1 | |a Van Wincoop, Eric |e Verfasser |0 (DE-588)124086799 |4 aut | |
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| illustrated | Illustrated |
| index_date | 2024-07-02T22:41:31Z |
| indexdate | 2024-07-09T21:25:14Z |
| institution | BVB |
| language | English |
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| publishDate | 2007 |
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| spelling | Bacchetta, Philippe 1960- Verfasser (DE-588)12418538X aut Random walk expectations and the forward discount puzzle Philippe Bacchetta ; Eric van Wincoop Cambridge, Mass. National Bureau of Economic Research 2007 13, [1] S. graph. Darst. 22 cm txt rdacontent n rdamedia nc rdacarrier Working paper series / National Bureau of Economic Research 13205 Literaturverz. S. 9 Two well-known, but seemingly contradictory, features of exchange rates are that they are close to a random walk while at the same time exchange rate changes are predictable by interest rate differentials. In this paper we investigate whether these two features of the data may in fact be related. In particular, we ask whether the predictability of exchange rates by interest differentials naturally results when participants in the FX market adopt random walk expectations. We find that random walk expectations can explain the forward discount puzzle, but only if FX portfolio positions are revised infrequently. In contrast, with frequent portfolio adjustment and random walk expectations, we find that high interest rate currencies depreciate much more than what UIP would predict. Van Wincoop, Eric Verfasser (DE-588)124086799 aut Erscheint auch als Online-Ausgabe National Bureau of Economic Research <Cambridge, Mass.> NBER working paper series 13205 (DE-604)BV002801238 13205 http://papers.nber.org/papers/w13205.pdf kostenfrei Volltext |
| spellingShingle | Bacchetta, Philippe 1960- Van Wincoop, Eric Random walk expectations and the forward discount puzzle |
| title | Random walk expectations and the forward discount puzzle |
| title_auth | Random walk expectations and the forward discount puzzle |
| title_exact_search | Random walk expectations and the forward discount puzzle |
| title_exact_search_txtP | Random walk expectations and the forward discount puzzle |
| title_full | Random walk expectations and the forward discount puzzle Philippe Bacchetta ; Eric van Wincoop |
| title_fullStr | Random walk expectations and the forward discount puzzle Philippe Bacchetta ; Eric van Wincoop |
| title_full_unstemmed | Random walk expectations and the forward discount puzzle Philippe Bacchetta ; Eric van Wincoop |
| title_short | Random walk expectations and the forward discount puzzle |
| title_sort | random walk expectations and the forward discount puzzle |
| url | http://papers.nber.org/papers/w13205.pdf |
| volume_link | (DE-604)BV002801238 |
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