Abstract
Survey data on the expectations of the Singapore/US dollar exchange rate are employed to evaluate (i) the role of exchange rate expectations in the pricing of the forward exchange rate, (ii) the rationality of foreign exchange market expectations and (iii) the nature of expectation formation mechanisms. The analyses indicate that movements in the forward discount mainly reflect expectations of future changes in the exchange rate and expectations of the market are not rational. In addition, expectations are best characterized as regressing toward the equilibrium PPP exchange rate The views expressed in this paper are solely the authors' and do not necessarily reflect those of the Monetary Authority of Singapore
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