On the role of fundamentals, private signals, and beauty contests to predict exchange ratesGiuseppe Pignataro, Davide Raggi and Francesca Pancotto International Journal of Forecasting, 2024, vol. 40, issue 2, 687-705 Abstract: This paper proposes a model where heterogeneous agents formulate their predictions of exchange rates based on a Bayesian learning process and higher-order beliefs where fundamentals and private information are used. We exploit survey data on professional forecasts to estimate the model through a Bayesian approach. Our analysis shows that higher-order beliefs are crucial, as they improve the ability to make predictions of exchange rates due to the possible coordination among agents. Moreover, public information plays the most critical role in determining individual predictions. Although the precision of the private signal is higher than the public one, information publicly revealed does exert a disproportionate influence, and differences in the estimated signals determine the equilibrium strategy of each agent as a combination of personal beliefs and higher-order expectations. Keywords: Exchange rates; Higher-order belief; Bayesian learning; Survey data; Public information; Private information (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:intfor:v:40:y:2024:i:2:p:687-705 DOI: 10.1016/j.ijforecast.2023.05.001 Access Statistics for this article International Journal of Forecasting is currently edited by R. J. Hyndman More articles in International Journal of Forecasting from Elsevier |
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