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Long Swings In The Exchange Rate And The Excess Returns Puzzle: The Role Of Imperfect Knowledge
Beginning of essay
Long Swings in the Exchange Rate and the Excess Returns Puzzle: The Role of
William Strauss
The paper is a clear breath of "dirty" air in the sterile world of perfect
foresight. The authors offer a well worked out model of how agents persistently
bid the exchange rate away from the expected long-r ....
Middle of essay
....ate path is
unstable) but cannot be sure of the de-gree of "incorrectness" or the
persistence of the di vergence. Embedded into this model are as-sumptions about
PPP that provide comfort about this benchmark's ability to give the "correct"
relative prices. It is possible that these assumptions, to some degree, mask
the complexity of the situation with respect to PPP's ability to proxy relative
prices. At the theoretical level, PPP should simply offer equal purchasing
power for equal commodity.... |
| Number of words: 505 |
Approximate pages: 2 |
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