Abstract
Euler equation models with consumption risk premia have shown promise of reconciling exchange rate data with the hypothesis of efficiency of the forward exchange rate. We examine the robustness of these models to variation in (1) the period utility function, (2) assumptions about the underlying forward trading mechanism, (3) the measure of consumption in the risk premium and (4) the weighting matrix applied to the model orthogonality conditions. In generalized method of moments estimations using a six-currency sample we find evidence that forward efficiency is robust to perturbations of the first two kinds, but not to the latter two. [F31, G14]
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