On the forecast accuracy and consistency of exchange rate expectations: the Spanish PwC Survey

Abstract

We examine the predictive ability and consistency properties of exchange rate expectations for the dollar/euro using a survey conducted in Spain by PricewaterhouseCoopers (PwC) among a panel of experts and entrepreneurs. Our results suggest that the PwC panel have some forecasting ability for time horizons from 3 to 9 months, although only for the 3-month ahead expectations we obtain marginal evidence of unbiasedness and efficiency in the forecasts. As for the consistency properties of the exchange rate expectation formation process, we find that survey participants form stabilizing expectations in the short run and destabilizing expectations in the long run.

Keywords:

• exchange rates
• forecasting
• expectations
• panel data

JEL Classification:

• F31
• D84
• C33

Acknowledgements

We thank PwC in Spain for kindly providing us with the data set. Financial support by the Spanish Ministry of Science and Innovation (ECO2011‐23189) is also gratefully acknowledged. María del Carmen Ramos-Herrera also acknowledges her grant (F.P.U.) from the Spanish Ministry of Science and Innovation (Ref. AP2008‐004015).

Notes

¹ We do not have detailed information for the question of the exchange rate for the surveys corresponding to the third quarter of 2007, the first and second quarters of 2008, the second quarter of 2010 and finally the third quarter of 2011.