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| Author: | Smith, G. |
| Title: | Exchange-rate discounting |
| Journal: | Journal of International Money and Finance
1995 : OCT, VOL. 14:5, p. 659-666 |
| Index terms: | EXCHANGE RATES DISCOUNT RATE FINANCE |
| Language: | eng |
| Abstract: | Economists often describe nominal exchange rates as forward-looking, so that they reflect discounted, expected future fundamentals. This study applies a method for identifying the discount rate involved, without knowing or measuring fundamentals. Identification arises from assumptions on the stochastic process followed by fundamentals, combined with non-linearity arising from expected future regime changes. Two applications yield evidence against the present-value model in the form of discount rates which are negative and statistically significant. |
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