Asset prices undergo long swings that revolve around benchmark levels. In currency markets, fluctuations involve real exchange rates that are highly persistent and that move in near-parallel fashion with nominal rates. The inability to explain these two regularities with one model has been...

This note focuses on George Soros's challenge to macroeconomics and finance theory that any valid methodology of social science must explicitly recognize fallibility in a Knightian sense. We use a simple algebraic example to sketch how extant models formalize fallibility. We argue that...

This paper argues that contemporary macroeconomic and finance models suffer from insuperable epistemological flaws and that their empirical difficulties -- which are particularly apparent in modeling market participants' expectations -- can be traced to economists' core premise that they can...

This paper offers a refinement and explores a resolution of the excess-returns puzzle in the foreign exchange market. We find that the predictions of the forward premium are not negatively biased throughout the three decades of floating, as commonly believed, but rather are sometimes positively...

Models using the Rational Expectations Hypothesis (REH) are widely recognized to be inconsistent with the observed behavior of premia in financial markets, as well as other features of asset price dynamics. Moreover, many reasons have been advanced as to why the REH cannot generally represent,...

Asset prices undergo long swings that revolve around benchmark levels. In currency markets, fluctuations involve real exchange rates that are highly persistent and that move in near-parallel fashion with nominal rates. The inability to explain these two regularities with one model has been...

Posing a major challenge to economic orthodoxy, <i>Imperfect Knowledge Economics</i> asserts that exact models of purposeful human behavior are beyond the reach of economic analysis. Roman Frydman and Michael Goldberg argue that the longstanding empirical failures of conventional economic models stem...