TY  - JOUR
AU  - Boudoukh,Jacob
AU  - Richardson,Matthew
AU  - Whitelaw,Robert
TI  - The Information in Long-Maturity Forward Rates: Implications for Exchange Rates and the Forward Premium Anomaly
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11840
PY  - 2005
Y2  - December 2005
UR  - http://www.nber.org/papers/w11840
L1  - http://www.nber.org/papers/w11840.pdf
N1  - Author contact info:
Jacob Boudoukh
The Caesarea Center
Arison School of Business, IDC
3 Kanfei Nesharim St
Herzlia 46150
ISRAEL
Tel: 972/544-875727
E-Mail: jboudouk@idc.ac.il

Matthew P. Richardson
Stern School of Business
New York University
44 West 4th Street, Suite 9-190
New York, NY 10012
Tel: 212/998-0349
Fax: 212/995-4233
E-Mail: mrichar0@stern.nyu.edu

Robert F. Whitelaw
New York University
Stern School of Business
44 West 4th Street, Suite 9-190
New York, NY  10012-1126
Tel: 212/998-0338
Fax: 212/995-4233
E-Mail: rwhitela@stern.nyu.edu
AB  - The forward premium anomaly is one of the most robust puzzles in financial economics. We recast the underlying parity relation in terms of cross-country differences between forward interest rates rather than spot interest rates with dramatic results. These forward interest rate differentials have statistically and economically significant forecast power for annual exchange rate movements, both in- and out-of-sample, and the signs and magnitudes of the corresponding coefficients are consistent with economic theory. Forward interest rates also forecast future spot interest rates and future inflation. Thus, we attribute much of the forward premium anomaly to the anomalous behavior of short-term interest rates, not to a breakdown of the link between fundamentals and exchange rates.
ER  -