Finance Papers

Document Type

Journal Article

Date of this Version

9-1989

Publication Source

American Economic Review

Volume

79

Issue

4

Start Page

621

Last Page

636

Abstract

Recent evidence concerning dollar forecasts during the early 1980s have led to assertions that the market was irrational. This paper investigates an alternative interpretation. Following the tightening of the U.S. money market, agents did not immediately believe that the change would persist, but instead learned the shift rationally. Empirical simulations indicate that the model appears consistent with about half of the dollar's underprediction implied by the forward market during the period.

Copyright/Permission Statement

Copyright © 1989 by the American Economic Association.Lewis, Karen K. "Changing Beliefs and Systematic Rational Forecast Errors with Evidence from Foreign Exchange." The American Economic Review 79, no. 4 (1989): 621-36.

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Date Posted: 27 November 2017

This document has been peer reviewed.