Journal de l'économie mondiale

Exchange Rate Expectations, Unbiasedness and Central Bank Intervention: The Experience of the Southern Cone

Abstract

Gonzalo Varela

This paper uses new survey data on foreign exchange expectations for Argentina, Brazil and Uruguay to test the hypothesis of unbiasedness. The pattern emerging is revealing: only Argentinean forecasts are unbiased predictors of exchange rate movements, while agents err systematically for Brazil and Uruguay. We argue that the systematic intervention of the Argentinean Central Bank in the foreign exchange market is likely to explain this result, as it simplifies the forecast exercise in that market. As long as the requirements to predict well are simple, agents perform well. If instead the exchange rate determination model is intricate, expectation failures arise.