A test of the news model of exchange rates |
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Authors: | Imad A. Moosa |
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Affiliation: | (1) Peterson Institute for International Economics, 1750 Massachusetts Avenue, Washington, DC 20036, USA |
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Abstract: | A Test of the News Model of Exchange Rates. — The news model is tested using quarterly data on six exchange rates involving four currencies over a period extending back to 1975. The results show that unbiased efficiency does not hold and that there are time-varying risk premia. The results also show that the news variables, proxied by the residuals of VAR models, do not have a significant effect on the exchange rate. It is argued that while news is a theoretically plausible explanation for erratic changes in the exchange rate, generated regressors cannot adequately represent news. |
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Keywords: | F31 |
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