Three surveys of exchange rate expectations allow us to measure directly the expected rates of return on yen versus dollars. Expectations of yen appreciation against the dollar have been (1) consistently large, (2) variable, and (3) greater than the forward premium, implying that investors were...

The careening path of the dollar in recent years has shattered more than historical records and the financial health of some speculators. It has also helped to shatter faith in economists' models of the determination of exchange rates.We have understood for some time that under conditions of...