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Short-run and long-run expectations of the yen/dollar exchange rate

Takatoshi Ito

Title:
Short-run and long-run expectations of the yen/dollar exchange rate
Author(s):
Ito, Takatoshi
Date:
Type:
Working papers
Department:
Center on Japanese Economy and Business
Permanent URL:
Series:
Center on Japanese Economy and Business Working Papers
Part Number:
82
Publisher:
Center on Japanese Economy and Business, Graduate School of Business, Columbia University
Publisher Location:
New York
Abstract:
The survey data of the yen/dollar exchange rate, collected twice a month for eight years from 1985 to 1993, shows the following features. First, the expected exchange rate changes in the short horizon (one month) is of the band-wagon type while the expected changes in the long horizon (three to six months) is of the mean-reversion type. That is, foreign exchange traders infers from recent appreciations or depreciation that the recent change in the exchange rate will continue for a while, but the direction of changes will reverse, eventually. Second, this result is robust for the entire sample period, which includes sub-periods of sharp yen appreciations and of relative calm, and with respect to different specifications. Third, the deviation from an equilibrium exchange rate does not yield a robust estimate in the regression of expectation formation. Although the history of the yen/dollar exchange rate fluctuations in the past two decades shows mean reversion over several years, they are not captured in the six-month expectations in the survey data.
Subject(s):
Economics, Commerce-Business
Item views:
240
Metadata:
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