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http://hdl.handle.net/2123/6735
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| Title: | Testing the Rationality of Exchange Rate and Interest Rate Expectations: An Empirical Study of Australian Survey Based Expectations |
| Authors: | Kim, Suk-Joong Department of Economics |
| Issue Date: | Mar-1996 |
| Publisher: | Dept of Economics |
| Series/Report no.: | 230 |
| Abstract: | This paper examines the rationality and optimality of the survey based expectations of Australian exchange rate and interest rates. One and four week ahead forecast of USD/$A exchange rate and two and four week ahead forecasts of the 190-day bank bill and l0-year bond rates were examined. The actual and expected variables were found to be cointegrated which indicates that the expected future values and the future realisations of the exchange rate and interest rates have long run equilibrium relationships. Estimation techniques that take into account the time-varying nature of the forecast error variance and the linear serial correlation in the form of moving average errors were employed for testing the optimality of the expectations in the cases where the frequency of the expectations data were finer than the forecast horizons. The estimation results show that the rationality of the expectations could not be rejected for all the expectations with the exception of the two week ahead forecast of the 90-day interest rate, which indicates that all available information was used at the time of forming relevant forecasts. The optimality of the expectations as tested through the Unbiased Expectations Hypothesis, is decisively rejected in all cases. |
| URI: | http://hdl.handle.net/2123/6735 |
| ISBN: | 1864512156 |
| Department/Unit/Centre: | Department of Economics |
| Appears in Collections: | Working Papers - Economics |
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