In Which Exchange Rate Models Do Forecasters Trust?

ByJaewoo Lee, H. Takizawa, David Hauner

May 1, 2011

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Using survey data of market expectations, we ask which popular exchange rate models appear to be consistent with expectation formation of market forecasters. Exchange rate expectations are found to be correlated with inflation differentials and productivity differentials, indicating that the relative PPP and Balassa-Samuelson effect are common inputs into expectation formation of market forecasters.

Subject: Currencies, Exchange rate arrangements, Exchange rate forecasting, Exchange rates, Foreign exchange, Money, Purchasing power parity

Keywords: Currencies, depreciating exchange rate, euro exchange rate, exchange rate appreciation, Exchange rate arrangements, exchange rate expectation, Exchange rate forecasting, Exchange rate models, exchange rate movement, exchange rate regime classification, Exchange rates, expected exchange rate change, forecasting, GDP, interest rate, interest rate differential, nominal exchange rate, Purchasing power parity, WP

Pages:
17
Volume:
2011
DOI:
https://doi.org/10.5089/9781455262397.001
Issue:
116
Series:
Working Paper No. 2011/116
Stock No:
WPIEA2011116
ISBN:
9781455262397
ISSN:
1018-5941

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