Exchange Rate Expectations, Unbiasedness and Central Bank Intervention: The Experience of the Southern Cone
The World Bank and the University of Sussex, 1818 H Street, Mail Stop MC-3 409, Washington DC, USA
- *Corresponding Author:
- Gonzalo Varela
The World Bank, and the University of Sussex, 1818 H Street
Mail Stop MC-3 409, Washington DC-20433, USA
Tel: +1 202 779 5544
E-mail: [email protected]
Received January 31, 2014; Accepted March 19, 2014; Published March 27, 2014
Citation: Varela G (2014) Exchange Rate Expectations, Unbiasedness and Central Bank Intervention: The Experience of the Southern Cone. J Glob Econ 2: 110. doi: 10.4172/2375-4389.1000110
Copyright: © 2014 Varela G. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
This paper uses new survey data on foreign exchange expectations for Argentina, Brazil and Uruguay to test the hypothesis of unbiasedness. The pattern emerging is revealing: only Argentinean forecasts are unbiased predictors of exchange rate movements, while agents err systematically for Brazil and Uruguay. We argue that the systematic intervention of the Argentinean Central Bank in the foreign exchange market is likely to explain this result, as it simplifies the forecast exercise in that market. As long as the requirements to predict well are simple, agents perform well. If instead the exchange rate determination model is intricate, expectation failures arise.