In this paper, we use the largest exchange rate survey in Colombia to test for the rational expectations hypothesis, the presence of a time-varying risk premium and the accuracy of exchange rate forecasts. Our findings indicate that episodes of exchange rate appreciation preceded expectations of...

We propose a model in which sticky expectations concerning shortterm interest rates generate joint predictability patterns in bond and currency markets. Using our calibrated model, we quantify the effect of this channel and find that it largely explains why short rates and yield spreads predict...

An important challenge in terms of smoothing excessive exchange rate volatility under the conditions of flexible exchange rate arrangement is optimization of the communication strategy of the country’s monetary regulator. Over the past two decades, communication (information support) has...

A theory-consistent CVAR scenario describes a set of testable regularieties one should expect to see in the data if the basic assumptions of the theoretical model are empirically valid. Using this method, the paper demonstrates that all basic assumptions about the shock structure and...

Perhaps no piece of news garners more attention in exchange markets than the U.S. employment report. Yet there has been only limited research on the market's response to the monthly release. This article quantifies the impact of the report and explains why exchange market sensitivity to the...

This paper proposes a simple chartist-fundamentalist model in which we allow for nonlinear time variation in chartists' extrapolation rate. Estimation of the model using monthly data for the major currencies vis-a-vis the US dollar shows that the model is significant in-sample and that it has...

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...

We present a macroeconomic market experiment on the financial determination of exchange rates, and consider whether the assumption that belief formation be treated as a classical hypothesis test, which we label inferential expectations, can explain the effect of uncertainty on exchange rates. In...

This paper examines whether rational, fully informed speculators stabilize floating exchange rates. Friedman's claim that they must do so (1953), because they buy low and sell high, is challenged. Friedman excluded any consideration of interest rate differentials from his interpretation of...