RT Journal Article
T1 Monetary policy regimes and the forward bias for foreign exchange
A1 Lafuente, Juan A
A1 Pérez Sánchez, Rafaela María
A1 Ruiz Andújar, Jesús
AB This paper provides a theoretical discussion of the forward premium anomaly. We reformulate the well-known Lucas (1982) model by allowing for the existence ofmonetarypolicy regimes. The monetary supply is viewed as having two stochastic components: (a) a persistent component that reflects the preferences of the central bank regarding the long-run money supply or inflation target, and (b) a transitory component that represents short-lived interventions. To generate agents’ forecasts, we consider two scenarios: (a) consumers can distinguish the permanent and the transitory components of the money supply (complete information), and (b) consumers face a signal-extraction problem to disentangle permanent and transitory components of the money supply (incomplete information). We simulate the model from a careful estimate of the parameters involved in the model. Numerical simulations reveal that, under complete information, forward unbiasedness cannot be rejected at conventionally significant levels. However, when learning about monetary policy is incorporated, the forward bias can be reproduced without artificially assuming an unreasonable degree of risk aversion.
PB ELSEVIER
SN 0148-6195
YR 2016
FD 2016
LK https://hdl.handle.net/20.500.14352/23620
UL https://hdl.handle.net/20.500.14352/23620
LA eng
NO Ministerio de Educación y Ciencia (MEC)
NO Generalitat Valenciana
NO University Jaume I
DS Docta Complutense
RD 12 abr 2025