Biases in FX-forecasts: Evidence from panel data

In this paper, we use the Wall Street Journal poll of FX forecasts to analyze how the group of forecasters form their expectations. One focus is whether forecasters build rational expectations. Furthermore, we analyze whether the group of forecasters can be regarded as homogeneous or heterogeneous. The results from our regressions strongly suggest that some forecasters combine different models of exchange rate forecasting, while others rely solely on one model. We also find evidence that some forecasters underlie a bias, while others do not. Overall, our regression results indicate a high degree of heterogeneity.