Heterogeneity in Exchange Rate Expectations: Evidence on the Chartist-Fundamentalist Approach
31 Pages Posted: 18 Dec 2008
Date Written: December 2008
This paper examines heterogeneity in exchange rate expectations. Whereas agents' heterogeneity is key in modern exchange rate models, evidence on determinants of heterogeneity is weak so far. Our sample, covering expectations from about 300 forecasters over 15 years, shows remarkable time variation in dispersion. Determinants of dispersion are consistent with the chartist-fundamentalist approach: misalignments of the exchange rate and exchange rate changes explain heterogeneity. The risk premium influences heterogeneity as well, but possible impacts from macroeconomic variables and exchange rate's volatility are dominated by the other determinants.
Keywords: exchange rate, heterogeneity, dispersion, chartists, fundamentalists
JEL Classification: F31, G14
Suggested Citation: Suggested Citation