Determination of Exchange Rates Essay by Calwriter

This paper analyzes the rational expectation hypothesis relating to the foreign exchange market modifications using various statistical methods and survey data, including three very important exchange rates: German Mark / U.S. Dollar, G.B. Pound / U.S.Dollar, and Japanese Yen / U.S. Dollar. The author points out that overlapping forecasting causes the serial correlation problem, which is corrected by estimating the forecast errors as a moving average process. The paper concludes that the expectations of spot exchange rates at various horizons and the actual rates have unit roots, all exchange rates showed stationary forecast errors for the one-month and three-month ahead estimations and the GB Pound / US Dollar proved stationary for the six-month ahead estimation, which was consistent with the results of the unit root tests.

Table of Contents
Problem Identification
Objectives
Hypothesis
Methodology
Literature Review
Findings and Results
Conclusions and Recommendations