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Can Animal Spirits Solve The Forward Premium Puzzle?, Anthony Paul Shkrelja
Can Animal Spirits Solve The Forward Premium Puzzle?, Anthony Paul Shkrelja
Wayne State University Dissertations
This dissertation decomposes, discusses, and ventures to solve an international macroeconomic anomaly known as the "Forward Premium Puzzle" into three main chapters. Chapter 1 explores the state of research pertaining to the Forward Premium Puzzle, which derives from a failure in the Uncovered Interest Parity (UIP). The body of literature is split into three branches i. Those works advocating the presence of an anomaly due to assumption of Rational Expectations, ii. Works preserving the assumption of Rational Expectations and instead discuss a bias due to Risk Premia, and iii. Research focused on econometric implementation of the forward premium estimator. Furthermore, …