| 来源类型 | Discussion paper |
| 规范类型 | 论文 |
| 来源ID | DP5261 |
| DP5261 Rational Inattention: A Solution to the Forward Discount Puzzle | |
| Philippe Bacchetta; Eric van Wincoop | |
| 发表日期 | 2005-10-23 |
| 出版年 | 2005 |
| 语种 | 英语 |
| 摘要 | The uncovered interest rate parity equation is the cornerstone of most models in international macro. However, this equation does not hold empirically since the forward discount, or interest rate differential, is negatively related to the subsequent change in the exchange rate. This forward discount puzzle is one of the most extensively researched areas in international finance. It implies that excess returns on foreign currency investments are predictable. In this paper we propose a new explanation for this puzzle based on rational inattention. We develop a model where investors face a cost of collecting and processing information. Investors with low information processing costs trade actively, while other investors are inattentive and trade infrequently. We calibrate the model to the data and show that (i) inattention can account for most of the observed predictability of excess returns in the foreign exchange market, (ii) the benefit from frequent trading is relatively small so that few investors choose to be attentive, (iii) average expectational errors about future exchange rates are predictable in a way consistent with survey data for market participants, and (iv) the model can account for the puzzle of delayed overshooting of the exchange rate in response to interest rate shocks. |
| 主题 | Financial Economics ; International Macroeconomics |
| 关键词 | Excess return predictability Forward discount puzzle Rational inattention |
| URL | https://cepr.org/publications/dp5261 |
| 来源智库 | Centre for Economic Policy Research (United Kingdom) |
| 资源类型 | 智库出版物 |
| 条目标识符 | http://119.78.100.153/handle/2XGU8XDN/534141 |
| 推荐引用方式 GB/T 7714 | Philippe Bacchetta,Eric van Wincoop. DP5261 Rational Inattention: A Solution to the Forward Discount Puzzle. 2005. |
| 条目包含的文件 | 条目无相关文件。 | |||||
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