Premium
Exchange Rate Expectations and the Risk Premium: Tests For A Cross Section of 17 Currencies *
Author(s) -
Frankel Jeffrey A.,
Chinn Menzie D.
Publication year - 1993
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.1993.tb00011.x
Subject(s) - economics , risk premium , depreciation (economics) , exchange rate , contrast (vision) , section (typography) , econometrics , monetary economics , variation (astronomy) , financial economics , microeconomics , business , profit (economics) , physics , capital formation , artificial intelligence , financial capital , computer science , advertising , astrophysics
Survey data on a broad cross section of 17 currencies are used to determine whether the forward discount moves primarily in response to changes in expectations of depreciation, or in the risk premium. We find that, in contrast to earlier studies involving developed country exchange rates, variation in the risk premium is a quantitatively significant factor in movements of the forward discount. However, changes in expectations also have a substantial effect.