Citation

Discussion Paper Details

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Title: Psychological Barriers in the Foreign Exchange Market

Author(s): Paul De Grauwe and Danny Decupere

Publication Date: January 1992

Keyword(s): Exchange rate, Market efficiency and Psychological barriers

Programme Area(s): International Macroeconomics

Abstract: This paper undertakes an empirical analysis of the existence of psychological barriers in the dollar/DM and the dollar/yen exchange markets. Psychological barriers occur when agents attach some special importance to the last trailing digits of the price of an asset or a currency. Our empirical results indicate that psychological barriers exist and are significant in the dollar-yen market. Market exchange rates tend to resist movements towards numbers such as 130, 140, ... yen per dollar etc. In addition, once these barriers have been crossed, exchange rates accelerate away from them. The evidence of psychological barriers in the dollar/DM market is less clear-cut.

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Bibliographic Reference

De Grauwe, P and Decupere, D. 1992. 'Psychological Barriers in the Foreign Exchange Market'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=621