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| Yi-Chi Chen and Wei-Choun Yu |
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| ''Structural change in the forward discount: a Bayesian analysis of forward rate unbiasedness hypothesis'' |
| ( 2011, Vol. 31 No.2 ) |
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| Using Bayesian methods, we reexamine the empirical evidence from Sakoulis et al. (2010) regarding structural breaks in the forward discount for G-7 countries. Our Bayesian framework allows the number and pattern of structural changes in level and variance to be endogenously determined. We find different locations of breakpoints for each currency; mostly, fewer breaks are present. We find little evidence of moving toward stationarity in the forward discount after accounting for structural change. Our findings suggest that the existence of structural change is not a viable justification for the forward discount anomaly. |
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| Keywords: Bayesian method, structural change, forward discount anomaly, Gibbs-sampling |
JEL: C1 - Econometric and Statistical Methods: General
F3 - International Finance: General |
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| Manuscript Received : Nov 11 2010 | | Manuscript Accepted : Jun 19 2011 |
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