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Article Dans Une Revue Review of International Economics Année : 2007

Switching Between Expectation Processes in the Foreign Exchange Market: A Probabilistic Approach Using Survey Data

Georges Prat
  • Fonction : Auteur
Remzi Uctum

Résumé

This paper relaxes a fundamental hypothesis commonly accepted in the expectation formation literature: expectations are, unchangingly, either rational or generated by one of the three simple extrapolative, regressive or adaptive processes. Using expectations survey data provided by Consensus Forecasts on six European exchange rates against the US Dollar, we find that the rational expectations hypothesis is rejected at the aggregate level. By implementing a switching regression methodology with stochastic choice of regime, we show that the expectation generating process is given at any time by some combination of the three simple processes. An interpretation of this framework in terms of economically rational expectations is suggested.
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Dates et versions

halshs-00081586 , version 1 (23-06-2006)

Identifiants

  • HAL Id : halshs-00081586 , version 1

Citer

Georges Prat, Remzi Uctum. Switching Between Expectation Processes in the Foreign Exchange Market: A Probabilistic Approach Using Survey Data. Review of International Economics, 2007, 15 (4), pp.700-719. ⟨halshs-00081586⟩
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