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Consistency under exponential forecasting

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  • Swarna Dutt

Abstract

We study the consistency property in the exchange rate expectation formation process, which all rational forecasts have, but which itself does not require rationality. An alternative test procedure recommended by Pesaran (1989) is applied. Survey data helps avoid the risk premium issue altogether. The exponential forecasting framework provides evidence of bandwagon effects in the expectation formation process. Consistency is upheld at the shorter forecast horizon, but breaks down conclusively for the longer forecast periods. These results are supported by Froot and Ito (1989).

Suggested Citation

  • Swarna Dutt, 1994. "Consistency under exponential forecasting," Applied Economics Letters, Taylor & Francis Journals, vol. 1(1), pages 14-18.
    • Handle: RePEc:taf:apeclt:v:1:y:1994:i:1:p:14-18
    DOI: 10.1080/135048594358375
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    1. Froot, Kenneth A. & Ito, Takatoshi, 1989. "On the consistency of short-run and long-run exchange rate expectations," Journal of International Money and Finance, Elsevier, vol. 8(4), pages 487-510, December.
    2. Pesaran, M. Hashem, 1989. "Consistency of short-term and long-term expectations," Journal of International Money and Finance, Elsevier, vol. 8(4), pages 511-516, December.
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    Cited by:

    1. Swarna Dutt & Dipak Ghosh, 1997. "Are experts' expectations rational? A multicurrency analysis," Applied Economics, Taylor & Francis Journals, vol. 29(6), pages 803-812.

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