This paper analyzes the rational expectation hypothesis relating to the foreign
exchange market modifications using various statistical methods and survey data, including three very important exchange rates: German Mark / U.S. Dollar, G.B. Pound / U.S.Dollar, and Japanese Yen / U.S. Dollar. The author points out that
overlapping forecasting causes the serial correlation problem, which is corrected by estimating the forecast
errors as a moving average process. The paper concludes that the
expectations of spot exchange
rates at various horizons and the actual rates have
unit roots, all exchange rates showed stationary forecast errors for the one-month and three-month ahead estimations and the GB Pound / US Dollar proved stationary for the six-month ahead estimation, which was consistent with the results of the unit root tests. Table of Contents Problem Identification Objectives Hypothesis Methodology Literature Review Findings and Results Conclusions and Recommendations
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