Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/195232 
Year of Publication: 
2016
Citation: 
[Journal:] Latin American Economic Review [ISSN:] 2196-436X [Volume:] 25 [Issue:] 1 [Article No.:] 3 [Publisher:] Springer [Place:] Heidelberg [Year:] 2016 [Pages:] 1-27
Publisher: 
Springer, Heidelberg
Abstract: 
In this paper, we use the largest exchange rate survey in Colombia to test for the rational expectations hypothesis, the presence of a time-varying risk premium and the accuracy of exchange rate forecasts. Our findings indicate that episodes of exchange rate appreciation preceded expectations of further appreciation in the short run, but were marked by depreciations in the long run. This reversal largely explains the stabilizing pattern of expectations. Additionally, we find that the forward discount differed from future exchange rate changes due to the rejection of the unbiasedness condition and to the presence of a time-varying risk premium. Finally, we find that only short run expectations were able to outperform a random walk process as well as models of extrapolative, adaptive, and regressive expectations. Long-run expectations, on the other hand, behaved poorly in terms of forecasting accuracy.
Subjects: 
Exchange rate expectations
Risk premium
Forecasting accuracy
Random walk
Forward discount
Rational expectations hypothesis
JEL: 
C23
C53
C83
F31
F37
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.