Structural change in the forward discount: A Bayesian analysis of forward rate unbiasedness hypothesis

Yi Chi Chen, Wei Choun Yu

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

Abstract

Using Bayesian methods, we reexamine the empirical evidence from Sakoulis et al. (2010) regarding structural breaks in the forward discount for G-7 countries. Our Bayesian framework allows the number and pattern of structural changes in level and variance to be endogenously determined. We find different locations of breakpoints for each currency; mostly, fewer breaks are present. We find little evidence of moving toward stationarity in the forward discount after accounting for structural change. Our findings suggest that the existence of structural change is not a viable justification for the forward discount anomaly.

Original languageEnglish
Pages (from-to)1807-1826
Number of pages20
JournalEconomics Bulletin
Volume31
Issue number2
Publication statusPublished - 2011 Jul 5

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)

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