Biases in FX-forecasts: Evidence from panel data

This paper "Biases in FX-forecasts: Evidence from panel data" by David Audretscha and Georg Stadtmann, looks at WSJ exchange rate forecasts. While I would take issue with their assertion that the responses to the WSJ survey are equivalent to the ideas acted upon by foreign exchange traders, there are some very interesting findings. First, during this period, July 1989 to July 2003, forecasters consistently expected the JPY to weaken more than it did. I would suggest that the weakness of the Japanese economy encouraged this belief. However, this view does not account for the huge Japanese current account surplus that, without large outflows of capital from Japan, will tend to keep the JPY supported. Second, the paper identifies four different methods of forecasting amongst those surveyed: an extrapolative model; a regressive model; a combination of these models; and neither of these.