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Title:The Underlying Cause of Unpredictability in Exchange Rates and Good Models of Exchange Rate Regime Selection: Field and Laboratory Evidence PDF Logo
Authors:Pope, Robin
Selten, Reinhard
Kaiser, Johannes
von Hagen, Jürgen
Issue Date:2006
Series/Report no.:Bonn econ discussion papers 2006,27
Abstract:Variance of exchange rates around predictions can be from 1) undiscovered fundamentals, 2) efficient markets, 3) destabilising speculation, or 4) regime and personality differences in the heuristics used in the stage of evaluating alternatives. Field and experimental evidence identifies 4) as the underlying cause. Variance effects prior to the resolution of risk damage macroeconomic management but are excluded by expected utility theory wherein utilities attach only to the segment of the outcome flow after risk is passed. To include the evaluation stage and such damage from variance, the authorities can use models within SKAT, the Stages of Knowledge Ahead Theory.
Subjects:exchange rate regime
exchange rate unpredictability
SKAT the Stages of Knowledge Ahead Theory
outlier analysis
Document Type:Working Paper
Appears in Collections:Bonn Econ Discussion Papers, Bonn Graduate School of Economics (BGSE), Universität Bonn

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