Monetary policy and inferential expectations of exchange rates

Menzies, GD; Zizzo, DJ

Monetary policy and inferential expectations of exchange rates

Menzies, GD

Zizzo, DJ

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Publication Type:: Journal Article
Citation:: Journal of International Financial Markets, Institutions and Money, 2012, 22 (2), pp. 359 - 380
Issue Date:: 2012-04-01

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Field	Value	Language
dc.contributor.author	Menzies, GD https://orcid.org/0000-0003-4133-2282	en_US
dc.contributor.author	Zizzo, DJ	en_US
dc.date.issued	2012-04-01	en_US
dc.identifier.citation	Journal of International Financial Markets, Institutions and Money, 2012, 22 (2), pp. 359 - 380	en_US
dc.identifier.issn	1042-4431	en_US
dc.identifier.uri	http://hdl.handle.net/10453/18814
dc.description.abstract	We present a macroeconomic market experiment to isolate the impact of monetary shocks on the exchange rate, as an alternative to SVAR identification. In a non-stochastic treatment, covered interest rate parity holds and predicted exchange rates are tracked well. In a stochastic treatment, we model expectations using a Neyman-Pearson hypothesis test (inferential expectations) and find evidence of belief conservatism and uncovered interest rate parity failure. The market environment magnifies belief conservatism, which is opposite to the standard claim that markets tend to eliminate individual choice anomalies. © 2011 Elsevier B.V.	en_US
dc.relation.ispartof	Journal of International Financial Markets, Institutions and Money	en_US
dc.relation.isbasedon	10.1016/j.intfin.2011.11.001	en_US
dc.subject.classification	Finance	en_US
dc.title	Monetary policy and inferential expectations of exchange rates	en_US
dc.type	Journal Article
utslib.citation.volume	2	en_US
utslib.citation.volume	22	en_US
utslib.for	1402 Applied Economics	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Economics Discipline
utslib.copyright.status	closed_access
pubs.issue	2	en_US
pubs.publication-status	Published	en_US
pubs.volume	22	en_US

Abstract:

We present a macroeconomic market experiment to isolate the impact of monetary shocks on the exchange rate, as an alternative to SVAR identification. In a non-stochastic treatment, covered interest rate parity holds and predicted exchange rates are tracked well. In a stochastic treatment, we model expectations using a Neyman-Pearson hypothesis test (inferential expectations) and find evidence of belief conservatism and uncovered interest rate parity failure. The market environment magnifies belief conservatism, which is opposite to the standard claim that markets tend to eliminate individual choice anomalies. © 2011 Elsevier B.V.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/18814