Abstract
Although the popular press constantly attributes jumps in exchange rates to unexpected economic statistics, the economics profession has made few if any serious attempts to distinguish empirically between the expected and unexpected factors that underlie exchange-rate movements. This paper focusses on several considerations that are relevant to drawing such a distinction. Section 2 briefly reviews the theoretical basis for presumption that changes in exchange rates since March 1973 have been predominantly unexpected. Section 3 discusses the factors that underlie the term structure of exchange-rate expectations and present a diagrammatic analysis of how unexpected news about different economic variable acan lead to different types of revisions in exchange-rate expectations and to unexpected jumps in observed exchange rates. Section 4 discusses the role of the current account. Section 5 draws some conclusions for empirical research.
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