We use the foreign exchange forecasts of the Wall Street Journal poll to compare forecasters' expectation formation process for the exchange rates of the euro and the yen against the U.S. dollar for the period 1999 - 2005. We also contrast the expectation formation process with the actual exchange rate process. We find that most forecasters have stabilizing exchange rate expectations, but our results also indicate significant heterogeneity between forecasters. While the actual exchange rate process of the yen/dollar exchange rate is more stable than expected by the forecasters, the dollar/euro exchange rate exhibits positive autocorrelation.
Journal of International Financial Markets, Institutions and Money, 2009, Vol 19, p. 588-596
Foreign exchange market, forecast bias, random walk