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Long Swings In The Exchange Rate And The Excess Returns Puzzle: The Role Of Imperfect Knowledge
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-run equilibrium rate. It
seems intuitively comfortable to see the mathematical justification for the
unexplained excess returns to be a function of the distance from the bench-mark
(PPP). The uncertainty of a switch occurring in a regime (the Peso Problem) is
an interest-ing for ....
Word count: 505 - Page count: 2
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