Long Swings In The Exchange Rate And The Excess Returns Puzzle: The Role Of Imperfect Knowledge
Beginning of paper
Long Swings in the Exchange Rate and the Excess Returns Puzzle: The Role of
William Strauss
The paper is a clear breath of "dirty" air in the sterile world of perfect
foresight. The authors offer a well worked out model of how agents persistently
bid the exchange rate away from the expected long-r ....
Middle of paper
.... at its place and its
characteristics. In the paper, the authors note that if PPP holds, "relative
excess demand for domestic and foreign goods is zero." The obvious suggestion,
based on the model, is that the flow of goods and services is the foundation for
the equilibrating dynamic. Behind the flow of goods and services is the gap
between the gap between, domestic and foreign short-term rates, and the steady
state long-run interest rate gap that sets goods flows to zero. The assumption
is ....
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Word count: 505
Page count: 2 (approximately 250 words per page)
