Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/51358
Authors: 
Dick, Christian D.
MacDonald, Ronald
Menkhoff, Lukas
Year of Publication: 
2011
Series/Report no.: 
ZEW Discussion Papers 11-062
Abstract: 
This paper suggests that exchange rates are related to economic fundamentals over medium-term horizons, such as a month or longer. We find from a large panel of individual professionals' forecasts that good exchange rate forecasts benefit from the proper understanding of fundamentals, specifically good interest rate forecasts. This relation is robust to individual fixed effects and further controls. Reassuringly, this relation is stronger during obvious fundamental misalignment. This occurs when exchange rates substantially deviate from their PPP values, when interest rate differentials are high and when exchange rates are less influenced by strong momentum.
Subjects: 
Exchange Rate Determination
Individual Expectations
Macroeconomic Fundamentals
JEL: 
F31
F37
E44
Document Type: 
Working Paper

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