In light of research questioning the usefulness of economists' models of exchange-rate determination, this paper investigates the rationality of survey measures of expectations for Deutschmark/dollar exchange rates for 1989-97. Using Liu and Maddala's (1992) "restricted cointegration" test, the...

Three surveys of exchange rate expectations allow us to measure directly the expected rates of return on yen versus dollars. Expectations of yen appreciation against the dollar have been (1) consistently large, (2) variable, and (3) greater than the forward premium, implying that investors were...

Tests of rational expectations in foreign exchange markets have been inconclusive because of disagreement over the underlying asset pricing model. This paper uses a newly available set of data on foreign exchange forecasts to examine directly expectations formation in four foreign currency...

This paper examines whether rational, fully informed speculators will smooth exchange rates. Friedman's (1953) claim that they must do so is challenged, based on the exclusion of interest rate differentials from his interpretation of speculator behavior. Once one recognizes that interest rates...