Imperfect Knowledge Economics

Name: Imperfect Knowledge Economics | Exchange Rates and Risk
Brand: Princeton University Press
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Exchange Rates and Risk

Roman Frydman Michael D. Goldberg(Autor*in)

Princeton University Press

1. Auflage

Erschienen am 26. September 2023

366 Seiten

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Inhalt

Cover
Half-title
Title
Copyright
Dedication
Contents
Foreword
Acknowledgments
List of Abbreviations
Part I: From Early Modern Economics to Imperfect Knowledge Economics
1. Recognizing the Limits of Economists' Knowledge
The Overreach of Contemporary Economics
The Aim of This Book
Contemporary Models in a World of Imperfect Knowledge
The Non-Fully Intelligible Individual
IKE Models
IKE of Exchange Rates and Risk
Imperfect Knowledge and Policy Analysis
From Contemporary Economics to Imperfect Knowledge Economics
2. A Tradition Interrupted
The Stranglehold of the Contemporary Approach
The Non-Fully Intelligible Individual in Early Modern Economics
Jettisoning Insights from Early Modern Analysis
3. Flawed Foundations: The Gross Irrationality of "Rational Expectations" and Behavioral Models
Conventional and Behavioral Representations of Preferences with Uncertain Outcomes
Self-Interest, Social Context, and Individual Decisions
Individual Behavior and Aggregate Outcomes
From Early Modern to Phelps's Microfoundations
"Rational Expectations": Abandoning the Modern Research Program
Diversity of Forecasting Strategies: The Gross Irrationality of "Rational Expectations"
Inconsistency in Behavioral Models
4. Reconsidering Modern Economics
Sharp Predictions and Fully Predetermined Representations
Qualitative Predictions of Change in Fully Predetermined Models
IKE Models of Change
IKE Causal-Transition Paths
Appendix 4.A: Fully Prespecifying Change in the Social Context
Appendix 4.B: Modeling Change in Outcomes with Fully Predetermined Probabilistic Rules
5. Imperfect Knowledge Economics of Supply and Demand
Fully Predetermined Representations of Supply and Demand
Supply and Demand Analysis in Contemporary Models
History as the Future and Vice Versa
Supply and Demand Analysis in IKE Models
Irreversibility of History in IKE Models
Part II: "Anomalies" in Contemporary Models of Currency Markets
6. The Overreach of Contemporary Models of Asset Markets
Describing Forecasting Behavior
Fully Predetermined Representations of Forecasting Strategies and Their Revisions
Modeling Economic Change with a Time-Invariant Structure
Models with Fully Predetermined Changes in Structure
Prespecifying Collective Beliefs in Currency Markets: Bubble Models
Appendix 6.A: A Conventional Macroeconomic Model
7. The "Puzzling" Behavior of Exchange Rates: Lost Fundamentals and Long Swings
Exchange Rates and Macroeconomic Fundamentals: The Futile Search for a Fully Predetermined Relationship
The Exchange Rate Disconnect Puzzle: An Artifact of the Contemporary Approach
Macroeconomic Fundamentals over Long Horizons: Self-Limiting Long Swings
Can REH Models Explain Long Swings in Exchange Rates?
REH Bubble Models and the Pattern of Long Swings in Real World Markets
Lost Fundamentals and Forsaken Rationality: Behavioral Models
8. "Anomalous" Returns on Foreign Exchange: Is It Really Irrationality?
The Record on Foreign Exchange Returns
An REH Risk Premium?
Is Irrationality the Answer?
The Forward-Discount "Anomaly": Another Artifact of the Contemporary Approach
Part III: Imperfect Knowledge Economics of Exchange Rates and Risk
9. Modeling Preferences in Asset Markets: Experimental Evidence and Imperfect Knowledge
Prospect Theory and Speculative Decisions
Endogenous Loss Aversion and Limits to Speculation
Experimental Evidence and Behavioral Finance Models
Moving beyond Behavioral Finance Models
IKE Representations of Preferences in Asset Markets: Individual Uncertainty Premiums
Imperfect Knowledge and Preferences over Gambles: Endogenous Prospect Theory
Appendix 9.A: Limits to Speculation under Endogenous Loss Aversion
10. Modeling Individual Forecasting Strategies and Their Revisions
Theories Consistent Expectations Hypothesis
IKE Representations of Revisions: An Overview
Trend Restriction
Conservative Revisions
Revisions of the Expected Unit Loss
11. Bulls and Bears in Equilibrium: Uncertainty-Adjusted Uncovered Interest Parity
Momentary Equilibrium in the Foreign Exchange Market
Equilibrium under Risk Aversion
Uncertainty-Adjusted UIP
12. IKE of the Premium on Foreign Exchange: Theory and Evidence
An IKE House Money Model: Time-Varying Preferences
An IKE Gap Plus Model: Autonomous Revisions in Forecasting Strategies
Confronting the Gap Plus and House Money Models with Time-Series Data
The Gap Plus Model and the Frequency of Sign Reversals
Avoiding the Presumption of Gross Irrationality
Appendix 12.A
13. The Forward Discount "Anomaly": The Peril of Fully Prespecifying Market Efficiency
Bilson-Fama Regression and the Forward Discount "Anomaly"
Structural Instability of the BF Regression and the Gap Plus Model
BF Regression and Market Efficiency
14. Imperfect Knowledge and Long Swings in the Exchange Rate
A Monetary Model
Invariant Representations and an Unbounded Swing Away from PPP
Fixed Policy Rules and Invariant Representations?
An IKE Model of Exchange Rate Swings
Conventional and Behavioral Views of Reversals
Imperfect Knowledge and Self-Limiting Long Swings
Appendix 14.A: Solution with an Invariant Representation
Appendix 14.B: Exchange Rate Swings and Sticky Goods Prices
15. Exchange Rates and Macroeconomic Fundamentals: Abandoning the Search for a Fully Predetermined Relationship
Structural Change in the Causal Mechanism
Macroeconomic Fundamentals and the Exchange Rate in the 1970s
Are the Monetary Models Consistent with Empirical Evidence?
Macroeconomic Fundamentals and the Exchange Rate in the 1980s
Appendix 15.A: Description of Data
References
Index

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