NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

The New Fama Puzzle

Matthieu Bussiere, Menzie D. Chinn, Laurent Ferrara, Jonas Heipertz

NBER Working Paper No. 24342
Issued in February 2018, Revised in December 2019
NBER Program(s):International Finance and Macroeconomics

We re-examine the Fama (1984) puzzle – the finding that ex post depreciation and interest differentials are negatively correlated, contrary to what theory suggests – for eight advanced country exchange rates against the US dollar, over the period up to June 2019. The rejection of the joint hypothesis of uncovered interest parity (UIP) and rational expectations – sometimes called the unbiasedness hypothesis – still occurs, but with much less frequency. Strikingly, in contrast to earlier findings, the Fama regression coefficient is positive and large in the period after the global financial crisis. However, using survey based measures of exchange rate expectations, we find much greater evidence in favor of UIP. Hence, the main story for the switch in Fama coefficients in the wake of the global financial crisis is mostly – but not entirely – a change in how expectations errors and interest differentials co-move. The durability of this phenomenon depends on the persistence in patterns in expectations errors, and the variability of those errors as well as of interest differentials.

download in pdf format
   (710 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w24342

Users who downloaded this paper also downloaded* these:
Auclert and Rognlie w24280 Inequality and Aggregate Demand
Eggertsson, Robbins, and Wold w24287 Kaldor and Piketty’s Facts: The Rise of Monopoly Power in the United States
Bryan, Choi, and Karlan w24278 Randomizing Religion: The Impact of Protestant Evangelism on Economic Outcomes
Camanho, Hau, and Rey w24320 Global Portfolio Rebalancing and Exchange Rates
Lazear and Shaw w13653 Personnel Economics: The Economist's View of Human Resources
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us