TY  - JOUR
AU  - Devereux,Michael B.
AU  - Smith,Gregor W.
AU  - Yetman,James
TI  - Consumption and Real Exchange Rates in Professional Forecasts
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14795
PY  - 2009
Y2  - March 2009
UR  - http://www.nber.org/papers/w14795
L1  - http://www.nber.org/papers/w14795.pdf
N1  - Author contact info:
Michael B. Devereux
Department of Economics
University of British Columbia
997-1873 East Mall
Vancouver, BC V6T 1Z1
CANADA
Tel: 604/822-2542
Fax: 604/822-5915
E-Mail: mbdevereux@gmail.com

gregor w. smith
Dept of Economics, Queens University
Kingston, Ontario, K7L 3N6, Canada
E-Mail: smithgw@econ.queensu.ca

James Yetman
Bank for International Settlements
Senior Economist
8 Finance Street, Central
Hong Kong SAR
Tel:  (852) 2878 7152
E-Mail: james.yetman@bis.org
AB  - Standard models of international risk sharing with complete asset markets predict a positive association between relative consumption growth and real exchange-rate depreciation across countries.  The striking lack of evidence for this link the consumption/real-exchange-rate anomaly or Backus-Smith puzzle - has prompted research on risk-sharing indicators with incomplete asset markets.  That research generally implies that the association holds in forecasts, rather than realizations. Using professional forecasts for 28 countries for 1990-2008 we find no such association, thus deepening the puzzle. Independent evidence on the weak link between forecasts for consumption and real interest rates suggests that the presence of 'hand-to-mouth' consumers may help to resolve the anomaly.
ER  -