Two currencies, one model? Evidence from the Wall Street Journal forecast poll

We use the foreign exchange forecasts of the Wall Street Journal poll to compare forecasters ’ expectation formation process for the ex-change rates of the euro and the yen against the U.S. dollar for the period 1999 – 2005. We also contrast the expectation formation pro-cess with the actual exchange rate process. We find that most fore-casters have stabilizing exchange rate expectations, but our results also suggest significant heterogeneity between forecasters. Compared to the forecasters ’ expectations the actual exchange rate process of the yen/dollar exchange rate is more stable than expected, while the euro/dollar exchange rate exhibit positive autocorrelation