Expectations and the UIP Puzzles when Foresight is Limited

  • 研討會日期 : 2024-05-31
  • 時間 : 14:30
  • 主講人 : Professor Seunghoon Na
  • 地點 : Conference room B110
  • 主持人 : Professor Donghoon Yoo
  • 演講者簡介 : Professor Seunghoon Na received his PhD from Columbia University in 2018. He is an Assistant Professor at Purdue University. His research fields are Macroeconomics, International Money and Finance, and Behavioral Macroeconomics.
  • 演講摘要 : This paper investigates exchange rate dynamics and its forecast errors by incorporating bounded rationality in a small open-economy New Keynesian model. Decision-makers possess limited foresight, capable of planning only up to a finite distance into the future. This yields dynamic overshooting ng of forecast errors in the real exchange rate across different time horizons. It also distinguishes between short- and long-term expectation formations, where the Law of Iterated Expectations breaks. This framework provides a micro-foundation for understanding time- and forecast-horizon variability in uncovered interest parity (UIP)puzzles. Our model predictions on these UIP violations align both qualitatively and quantitatively with empirical estimates.