What drives heterogeneity in foreign exchange rate expectations: insights from a new survey

Christian Dreger and Georg Stadtmann

International Journal of Finance & Economics, 2008, vol. 13, issue 4, 360-367

Abstract: Foreign exchange rate expectations play a central role in virtually all monetary models for the open economy. Therefore, it is extremely important to gain empirical insights into the expectations formation process. In this paper, we use a unique disaggregated data set to model the expectations of the Yen|USD exchange rate of about 50 leading foreign exchange rate professionals. The survey includes not only exchange rate projections but also expectations regarding macroeconomic fundamentals, like GDP growth, inflation, and interest rates. Different expectations of fundamentals can lead to different views of exchange rate dynamics. Using panel models, we are able to confirm the heterogeneity of exchange rate expectations often detected in previous studies. More important, we provide strong evidence regarding the likely source of heterogeneity. In line with forward looking models for the exchange rate, expected fundamentals have a substantial impact on exchange rate expectations, thereby challenging the backward looking evidence from previous studies. However, the heterogeneity in the expectations of macroeconomic fundamentals is not sufficient to explain the heterogeneity in exchange rate expectations. Copyright © 2007 John Wiley & Sons, Ltd.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
http://hdl.handle.net/10.1002/ijfe.359 Link to full text; subscription required (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ijf:ijfiec:v:13:y:2008:i:4:p:360-367

Ordering information: This journal article can be ordered from
http://jws-edcv.wile ... PRINT_ISSN=1076-9307

DOI: 10.1002/ijfe.359

Access Statistics for this article

International Journal of Finance & Economics is currently edited by Mark P. Taylor, Keith Cuthbertson and Michael P. Dooley

More articles in International Journal of Finance & Economics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().