An Empirical Analysis of Relationships between the Forward Exchange Rates and Present and Future Spot Exchange Rates Example of CZK/USD and CZK/EUR
Year: 2017 Volume: 67 Issue: 3 Pages: 199-220
Abstract: The aim of this paper is to present an empirical analysis of the relationships between the forward and spot exchange rates in the Czech Republic. The forward rate unbiasedness hypothesis, the expectation hypothesis, the adaptive expectation hypothesis and the hypothesis of covered interest rate parity are formulated in this paper. To test the first two hypotheses the econometric procedure based on co-integration and weak exogeneity testing is proposed. The third and fourth hypotheses are verified by the Engle-Granger co-integration test. The estimates do not support the forward rate unbiasedness hypothesis. On the contrary, the results confirm the hypothesis of adaptive expectation and the hypothesis of covered interest rate parity.
JEL classification: F31, C12, C22
Keywords: forward and spot exchange rates, unbiasedness hypothesis, interest rate differentials, co-integration, exogeneity
RePEc: https://ideas.repec.org/a/fau/fauart/v67y2017i3p199-220.html
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