Two currencies, one model? Evidence from the Wall Street Journal forecast poll Michael Frenkel, Jan Ruelke and Georg Stadtmann October 2005 Abstract 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. JEL classification: F31, D84, C33 Keywords: Foreign exchange market, forecast bias, random walk Address: WHU Koblenz Tel: +49/261/6509–280 Otto Beisheim Graduate Fax: +49/261/6509–279 School of Management e–Mail: michael.frenkel@whu.edu Burgplatz 2 56179 Vallendar Germany