| Forecasts of exchange rate movements generally
have a miserable record. Those complied by Consensus Forecasts concerning the
euro have been true to form. Analysing the results of this survey indicates a
worrying unanimity of error, which raises questions about the way forecasts are
compiled. Are they not a result of herd behaviour? Also, if forecasts influence
markets, at least in part, how is it possible to reconcile the expected appreciation
of the euro from early 1999 to early 2001 with the depreciation that actually
occurred? The answers provided to these questions here suggest that it was the
lack of sufficiently strong conviction about euro/dollar exchange rate which prevented
expectations from playing a truly stabilising role. |
Abstract |
