NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Exchange Rate Expectations and the Risk Premium: Tests For a Cross- Section of 17 Currencies

Jeffrey Frankel, Menzie Chinn

NBER Working Paper No. 3806*
Issued in August 1991
NBER Program(s):   ITI    IFM

Survey data on a broad cross section of 17 currencies are used to determine whether the forward discount moves primarily in response to changes in expectations of depreciation, or in the risk premium. We find that changes in expected depreciation are quantitatively significant. However we also find evidence, in contrast to earlier studies involving only four or five major currencies, that variation in the risk premium constitutes a large part of variation in the forward discount as well.

*Published: Review of International Economics, 1: no. 2, June 1993, 136-144

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