Title:

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

Author(s):

Ito, Takatoshi

Date:

1993

Type:

Working papers

Department:

Center on Japanese Economy and Business

Permanent URL:

http://hdl.handle.net/10022/AC:P:163

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:

154

Metadata:

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