Hidden Bibliographic Details
| Other authors / contributors: | Ma, Yue, 1963-
International Monetary Fund. Research Department.
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| ISBN: | 1451892306
9781451892307
1462332919
9781462332915
1452768455
9781452768458
1281606162
9781281606167
9786613786852
6613786853
9781451844672
1451844670
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| Notes: | Includes bibliographical references (pages 30-31).
Restrictions unspecified
Electronic reproduction. [Place of publication not identified] : HathiTrust Digital Library, 2010.
Master and use copy. Digital master created according to Benchmark for Faithful Digital Reproductions of Monographs and Serials, Version 1. Digital Library Federation, December 2002. http://purl.oclc.org/DLF/benchrepro0212
English.
digitized 2010 HathiTrust Digital Library committed to preserve
Print version record.
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| Summary: | Annotation The forward premium is a notoriously poor predictor of exchange rate movements. This failure must reflect deviations from risk neutrality and/or rational expectations. In addition, a mechanism is needed that generates the appropriate correlation between the forward premium and shocks arising from risk premia or expectations errors. This paper extends McCallum (1994) to show how such a correlation can arise from the response of monetary policy to output and inflation, which are in turn affected by the exchange rate. the theoretical models considered all generate results that are consistent with the forward premium being a biased predictor of short-term exchange rate movements; the bias decreases, however, as the horizon of the exchange rate change lengthens. Another common feature of the models is that the true reduced-form equation for exchange rate changes contains variables other than the interest differential, providing a justification for eclectic relationships for forecasting exchange rates. the results, however, remain consistent with using uncovered interest parity as a building block for structural models.
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| Other form: | Print version: Meredith, Guy. Forward premium puzzle revisited. [Washington, D.C.] : International Monetary Fund, ©2002
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| Standard no.: | 10.5089/9781451892307.001
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