Is the peso problem useful in explaining the failure of empirical test to validate the hypothesis of
Question:
Is the peso problem useful in explaining the failure of empirical test to validate the hypothesis of FOREX market efficiency? Discuss
Core readings:
Pilbeam textbook:7.2, 9 (1-5);
Karen Lewis (2007)Peso Problem, The New Palgrave Dictionary of Money and Finance, 2007.https://fnce.wharton.upenn.edu/prole/954/researchSarno et al. (2006), https://www.imf.org/external/pubs/ft/wp/2006/wp06136.pdf
Optional Readings:
Sarno and Taylor (2002), ch.4;K.A. Froot and J.A. Frankel, "Forward Discount Bias: is it an Exchange Rate Premium?",Quarterly Journal of Economics, February 1989
Kaminsky (1993), "Is there a Peso Problem? Evidence from the Dollar/Pound ExchangeRate 1976-1987", American Economic Review, 83(3), pp. 450-472
Krasker (1980) The peso problem in testing the e ciency of forward exchange markets,Journal of Monetary Economics, 6, (April), pp. 269-276.
Rogoff (1996) The purchasing power parity puzzle, Journal of Economic Literature, (June), pp.647-668.
Froot &Frankel (1989) Forward Discount Bias: is it an exchange risk premium