Persistence in the Variability of Daily Exchange Rates
October 1, 1991
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Summary
Rational speculation in foreign exchange trading is often assumed to dampen exchange rate fluctuations by bringing the market back to fundamentals. Nevertheless, information congestion provides incentives for traders to follow positive feedback strategies which result in persistent and volatile exchange rate behavior by magnifying the impact of exogenous shocks. Empirical evidence is presented which is consistent with such autocatalytic effects.
Subject: Currencies, Currency markets, Exchange rate adjustments, Exchange rate analysis, Exchange rates, Financial markets, Foreign exchange, Money
Keywords: Currencies, Currency markets, deutsche mark, dollar expectation, Exchange rate adjustments, Exchange rate analysis, Exchange rates, larger-than-average yen depreciation, math, pound sterling, sell-off effect, U.S. dollar, WP
Pages:
26
Volume:
1991
DOI:
Issue:
104
Series:
Working Paper No. 1991/104
Stock No:
WPIEA1041991
ISBN:
9781451852738
ISSN:
1018-5941
