01985cas a2200241 a 4500 AALejournalIMF000232 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451846799 1018-5941 BD-DhAAL BD-DhAAL International Monetary Fund. Infrequent Large Nominal Devaluations and their Impacton the Futures Prices for Foreign Exchange in Brazil. Washington, D.C. : International Monetary Fund, 1996. 1 online resource (34 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper discusses the behavior of futures prices for foreign exchange in Brazil during a period of high inflation and successive stabilization attempts (1989-92). After testing for futures prices unbiasedness and predicability by applying the Generalized Method of Moments, the paper argues that the finding of excess returns may be viewed as a rational response to the frequent and unpredictable changes in the exchange rate policy during that period. This response could reflect (i) an informational problem where the exchange rate policy is assumed to be unknown; or, (ii) a 'peso' problem of rational (under) overprediction where the futures bias is the market response to the known policy of infrequent large nominal devaluations. The second line of explanation is suggested by conditioning the probability distribution of the excess return of futures contracts on the event of a major devaluation. Mode of access: Internet IMF Working Papers; Working Paper ; No. 1996/049 Full text available on IMF http://elibrary.imf.org/view/journals/001/1996/049/001.1996.issue-049-en.xml IMF e-Library