Exchange Rate Dynamics, Learning and Misperception /
Gourinchas, Pierre-Olivier.
Exchange Rate Dynamics, Learning and Misperception / Pierre-Olivier Gourinchas, Aaron Tornell. - Cambridge, Mass. National Bureau of Economic Research 2002. - 1 online resource: illustrations (black and white); - NBER working paper series no. w9391 . - Working Paper Series (National Bureau of Economic Research) no. w9391. .
December 2002.
We propose a new explanation for the forward-premium and the delayed-overshooting puzzles. Both puzzles arise from a systematic under-reaction of short-term interest rate forecasts to current innovations. Accordingly, the forward premium is always a biased predictor of future depreciation; the bias can be so severe as to lead to negative coeffcients in the 'Fama' regression; delayed overshooting may or may not occur depending upon the persistence of interest rate innovations and the degree of under-reaction; lastly, for G-7 countries against the U.S., these puzzles can be rationalized for values of the model's parameters that match empirical estimates
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Mode of access: World Wide Web.
Exchange Rate Dynamics, Learning and Misperception / Pierre-Olivier Gourinchas, Aaron Tornell. - Cambridge, Mass. National Bureau of Economic Research 2002. - 1 online resource: illustrations (black and white); - NBER working paper series no. w9391 . - Working Paper Series (National Bureau of Economic Research) no. w9391. .
December 2002.
We propose a new explanation for the forward-premium and the delayed-overshooting puzzles. Both puzzles arise from a systematic under-reaction of short-term interest rate forecasts to current innovations. Accordingly, the forward premium is always a biased predictor of future depreciation; the bias can be so severe as to lead to negative coeffcients in the 'Fama' regression; delayed overshooting may or may not occur depending upon the persistence of interest rate innovations and the degree of under-reaction; lastly, for G-7 countries against the U.S., these puzzles can be rationalized for values of the model's parameters that match empirical estimates
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.