American Economic Review Vol. 80 No. 4 1990
Long Swings in the Dollar: Are They in the Data and Do Markets Know It?
Abstract
The value of the dollar appears to move in one direction for long periods of time. We develop a new statistical model of exchange rate dynamics as a sequence of stochastic, segmented time trends. We reject the null hypothesis that exchange rates follow a random walk in favor of our model of long swings. Our model also generates better forecasts than a random walk. The specification is a natural framework for assessing the importance of the "peso problem" for the dollar. We nonetheless reject uncovered interest parity.
- Volume
- 80
- Issue
- 4
- Pages
- 689-713
- Sources
- bibtex:phds-export.bib